CSCMP's Supply Chain Quarterly
October 23, 2018

Economic anemia will lead to innovation

Expect no letup in the relentless pressure on U.S. logistics managers to cut costs. To meet that challenge, they will have to regularly re-examine the makeup of their supply chain networks.

If you needed any more proof of a stalled U.S. economy, you can find it in CSCMP's 22nd Annual "State of Logistics Report." That study provides plenty of data showing that business conditions have not substantially improved in the past year.

It's been almost three years since the October 2008 stock market crash, and the economy just doesn't seem to be getting much better. Even though economists say that the Great Recession has ended and we're supposedly in a recovery, U.S. unemployment persists at a rate above 9 percent.

But I'd like to suggest that there's more going on here than meets the eye. Our economic state does not resemble the Great Depression; it resembles the Long Depression.

The Long Depression lasted from 1873 to 1879, and it was a worldwide economic crisis that battered both the United States and Europe. Like most downturns in the business cycle, its start was marked by a financial meltdown, the collapse of the banking house of Jay Cooke and Co. (no relation to the author) that brought down the New York Stock Exchange.

During the Long Depression, U.S. unemployment was estimated as being between 10 percent and 15 percent. Real wages for those employed declined an estimated 25 percent. Doesn't this sound like the "New Normal"?

The underlying cause for the Long Depression was the "Second Industrial Revolution" (also known as the Technological Revolution): the United States and Western Europe were switching from an agricultural economy to a manufacturing one.

As machines eliminated the need for labor in agriculture, displaced farmhands went expertise and skills to obtain, jobs that pay that the factories, also deploying new to find work in the cities, only to find technology, did not require new workers either. The result was a high rate of unemployment for several years. Something similar is happening today, and the policy makers have not yet figured it out. The United States is undergoing another structural economic shift. The country is finally moving toward the long-touted, "knowledge-creative economy." Until workers obtain, or have the well, unemployment will linger, providing a drag on an economy driven by consumer spending. Volatile energy prices will only exacerbate this problem.

The nation's economic transformation will surely affect logistics. Companies will continue to invest heavily in software and equipment to increase productivity in logistics, exacerbating unemployment. Even though they may move some production closer to the U.S. market, manufacturing will continue to be located outside the nation's borders in other parts of North America.

There will also be no letup in the relentless pressure on U.S. logistics managers to cut costs. To meet that challenge, they will have to regularly re-examine the makeup of their supply chain networks and apply the latest in business software to obtain that crucial piece of intelligence they need to achieve an extra edge over the competition.

With no quick end in sight to the current "economic anemia," logistics managers will have to become more resourceful and innovative if they want their companies to succeed in this tough economic climate.

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

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