Staying Put

On Wednesday, the U.S. Bureau of the Census released figures showing that fewer American residents relocated in 2008 than in any year since 1962. The "mover rate" was the lowest since the bureau began tracking such movements in 1948. Still, more than 35 million people changed their residences last year. And based on available U.S. census and unemployment data, we can estimate that roughly 20 million Americans of working age made such a transition for a new job or with job in hand.

What, you may ask, does this have to do with supply-chain planning? Sit tight.

The causes and effects of plummeting home prices and massive job losses on population movement should be fairly obvious: families can't sell their houses (and don't want to purchase new ones until they sell their existing homes); few new jobs exist (or are not considered to be worth moving for); fearing layoffs or having already lost a job, families are holding off on any big moves. We effectively now have a captive society.

And this captivity is, in turn, having further impacts on the U.S. economy. The $16.5 billion move industry has ground to a halt. Not to mention the impacts such behavior is having on related sectors (home improvement services, appliances and furnishings).

Some economists are concerned about the effects this phenomenon will have on macro-economic efficiencies. Quoted in The New York Times, Joseph S. Tracy, research director of the Federal Reserve Bank of New York said: "The thing that would be of deeper concern is if job-related moves are getting suppressed and workers are not getting re-sorted to the jobs that best use their skills,” he said. “As the labor market started to improve, if mobility stays low, you can worry about the allocation of workers." But this view assumes that workers' skills are generally transferable across industries and that the economy benefits more from a continual redistribution of workers.

One important aspect of American (as well as international) economic activity that is overlooked in the efficient-redistribution-of-labor argument is the existence of industry clusters and roles these play in the functioning of industry. Dating back centuries and occurring around the globe, industry, trade or business clusters have been key contributors to the economic development of cities like Hanoi in Vietnam and New York and entire regions such as Silicon Valley and the Upper Midwest in the U.S. Studied and popularized by Michael Porter of Harvard Business School and Paul Krugman of Princeton, industry clusters are now objects of desire for many government economic planners.

In such clusters, industrial know-how, intellectual property, skills and infrastructure are developed and shared. Investments are made by individuals, firms, governments and consortiums that end up benefiting the greater good. Institutional and "tribal" knowledge--though not necessarily well maintained--serves as the glue that enhances productivity within the cluster, binds members of each cluster together and strengthens them over time.

Despite the effects of globalization and the emergence of new offshore (often lower cost and clustered) sources of supply, perhaps we should not forget the important role that traditional centers of production and supply serve. As we watch U.S. automakers struggle to survive, let's not too quickly bemoan a lack of mobility among U.S. workers. To be sure, current economic conditions are creating extreme hardships for families living in cluster areas such as Detroit. But, in a way, could the current slowdown in movement be a good thing? The best folks to have at the ready when the economy picks up again are probably the ones who best know how to produce the goods and provide the services in the industries most affected by the recession.

The Obama administration will promote the development of new industries, but these will be industries closely related to existing ones. Americans won't stop buying cars--we'll eventually need people to build more fuel-efficient cars in a cluster that has a history of building automobiles. We won't stop using personal computers and software--Silicon Valley will continue to churn out ever smaller forms of personal technology. And, yes, eventually we'll need a cluster to help manage complex financial instruments--and it will probably be in a place called New York City.

So what does this all have to do with supply-chain planning? Not much in the immediate future, but potentially lots if you're thinking strategically about how to evaluate and manage your supply-chain risk five to ten years out. Recent supply-chain management thinking would have us planning for a one-way shift in our sources of supply, looking toward lower-cost countries and and abandoning traditional, seemingly-at-risk supplier bases. But, ignoring the historical role of clusters and their potential future influence on your supply-chain would be a mistake. Your suppliers are located where they are for good reason. Be prepared for them to stay put for quite some time. And be sure your strategic supply-chain planning takes into account the importance of returning to them in the future.

(Photo credit: Head_First_Only on Flickr)