3.5.1 Leakages from dispersed geographical distribution

Even the smallest of components within appliances are sourced and produced using multi-tiered supplier networks with supply chains originating from multiple sites all across the globe. For example, a B&Q (home improvement retailer) power hand-drill consists of 80 separate parts produced within a 3-tier supplier system using more than 14 raw materials sourced from 7 countries.

Source: World Economic Forum “Towards a circular economy” Report

This highlights how global our economy is, due to manufacturing operations that are often shifted to emerging economies where labor and other costs are low. It has increased the complexity of our economic system and made supply chains more vulnerable due to reliance on cross-border flows of raw materials, component parts, and final products. Leakages occur at each step, compounding inefficiencies in the system.

Another example of leakage that occurs in the geographical dispersion is excess capacity in containers that transport materials (I’m certain you have seen thousands of those in Singapore’s port and on the backs of trucks). When these containers move around the world partially empty, tangible leakage occurs.

Source: Drewry Container Freight

Note: The load factor presents the ratio between cargo demand and available capacity. The container rate defines the difference in shipment values based on import and export out of a specific location (China). The significant percentage decreases in loading and value highlight the tangible losses that are being incurred as a result of geographic dispersion of production operations.

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