America faces supply chain disruption and shortages.” “From zippers to glass, shortages of basic goods hobble the US economy.” “America Is Running Out of Everything.”
Over the last few weeks, you could have read any number of news stories like these. If you read these news stories, you find that shoppers are wandering from store to store, looking for basic household supplies and goods. On e-Commerce sites, many goods that used to be available with one-day shipping now have waiting periods of a week or more. For those of us of a certain age, it all sounds quite familiar—the way things used to be in India in the 1970s.
Of course, there are shortages all over the world, most notably of semiconductors but nothing like the 360° ones being suffered by what was supposed to be the most ruthlessly efficient economy in the world. So what happened, where is the source of the problem? The answer is right there – efficiency. The root cause of the problem is efficiency. Do you find that surprising? Not only is efficiency a problem, it might also be a problem in your personal financial affairs. Let me explain.
What is efficiency? Generally, it means getting the most output with the least input. That sounds like a good thing. However, covid has exposed the negative side of efficiency. That’s because being efficient also means having no spare capacity. During the past 18 months, we have learnt (or at least, should have learned) the value of inefficiency. The inefficient are coming out of this pandemic much better than the highly efficient. We are so used to seeing inefficiency as a negative characteristic that we sometimes don’t stop and think about what it means for a business or indeed any system. I remember back in February 2020, when the virus was just limited to China, a friend who is familiar with the workings of private healthcare providers told me that there’s likely to be very little excess ICU capacity in private hospitals when the virus would start spreading in India.
Why’s that so? Having too many ICU beds lying vacant is inefficient. All that investment in beds, rooms, equipment and people is not earning any revenue. As a business, this is undoubtedly true. Having a vacant bed is healthcare’s equivalent of having capacity in a factory and not producing anything. If you are an investor in a company that runs hospitals, it would be in your financial interest to have as little spare, unused ICU capacity as possible. How did that work out once the pandemic took hold? That’s just an extreme example though. Many businesses are run in a way that even a small hiccup in the revenue or supply chains is hard to …….