This conclusion should not be surprising. If everything is optimized to the extreme and with a utilization rate close to 100%, it can be very profitable, but it will also be on the verge of implosion.
This is why Google and Amazon have redundancies in their computer servers around the world. Their customer data is duplicated and stored in multiple places.
It’s a more expensive approach, but it’s how the tech giants avoid catastrophic results.
Executives will never give in to pressure from Wall Street to eliminate layoffs in order to save those tens of millions of expenses.
In contrast, when it comes to semiconductors, traditional automakers are turning a blind eye to activities outside their own business.
They believed that as long as they had a contract in place, they were safe. Except of course, there are times when perfectly drafted contracts aren’t even enforceable no matter how hard you shout.
All of this was nothing new to the auto industry. The only difference is that Toyota’s exhaustive storage was touted just a few months ago as one of the main reasons for its exceptional escape from this global chip shortage.
The fact that even the powerful have fallen suggests that this approach is not guaranteed protection against disruption.
After decades of outsourcing and disintermediation in the pursuit of profit and efficiency, large companies may now be witnessing the start of a reversal of long-standing trends in supply chain management.
Howard Yu is the LEGO Professor of Management and Innovation and Director of the Center for Future Readiness at IMD Business School.