More Market or More Planning? – Some Thoughts on Supply-Side Reform

A few days ago, a friend and I were talking about the history of clothing production. He said that large-scale, mass clothing production is a result of World War I, because the war triggered the need for rapid, large-scale clothing production, which led to today’s sizing standards. The fashionable Burberry trench coat that is popular now was also originally produced for the military. I haven't verified the entire history, but I have seen Burberry trench coat advertisements, which did tell a touching war story. Hearing my friend's statement for the first time, I was a bit surprised and also a bit skeptical, but it did activate my thinking about supply-side reform over the past year.

Supply and demand are two sides of the same coin, mutually promoting each other, a bit like the chicken and egg problem. It seems impossible to say who came before whom. But to make changes, you always have to start from one end. The story my friend told seemed to reflect my vague yet strong feeling.

To fundamentally reform the supply side, you must first reform the demand side. The demand side is the key to driving supply-side reform.

The first type of supply-side reform is satisfying needs that have always existed but have not been fully met. For example, humans wanted to fly, and one day airplanes finally met the need for flight and also met the need for fast transoceanic travel. This major category covers most supply-side upgrades, satisfying people’s demands for faster, more, better, and more beautiful things. When one kind of greed is satisfied, another greed will appear. Of course, this greed is mostly called pursuit.

The second type of supply-side reform originates from the emergence of new application scenarios. For example, the world war appeared. Under this new, sudden application scenario, clothing and many other daily necessities were needed in batches, on a large scale, and with standardization, which promoted huge changes in the supply-side production organization, management, and delivery circulation.

The third type of supply-side reform originates from changes in the aggregation of front-end demand, or rather, from a significant change in information collection costs. For example, after the emergence of smartphones, the cost of collecting routes, locations, and ride-hailing demand was greatly reduced, allowing people to meet their travel needs with shared transportation methods like Uber.

There should be some other situations that cause supply-side changes that I haven't thought of, but no matter what kind of supply-side change it is, there should always be a corresponding demand. Major changes in people’s demand scenarios are not many (new scenarios like war that cause the second type of change). Upgrading people’s existing demands (more, faster, better, etc.) is quite common, but are all these faster and more things worth pursuing and encouraging? This is a question worth reflecting on, but I won't elaborate on it here. The third type of change, through the aggregation of information and the full-chain connection to achieve better and more efficient satisfaction of existing needs, has great potential and is mostly worthy of encouragement. Thinking a little further about the third type of change is quite interesting. There are a large number of possibilities to exchange the unification of time and space for higher overall efficiency and lower costs. Abstractly speaking, there is a possibility of a semi-market economy that promotes the supply side to break through the lagging large-scale planned production and achieve small- and medium-scale batch "customized production" by promoting the demand circulation side to adopt more planning, that is:

Use the semi-"planned economy" of the demand circulation side to promote the realization of the semi-"market economy" of the supply side.

Our original online e-commerce solved the problem of moving the Yiwu small commodity market online. This highly transparentized information on the circulation side and accelerated market competition among various merchants, but it didn't change traditional manufacturing factories much. How much a factory produces still requires some planning. The main factories still rely on large offline commercial supermarket orders, scheduling plans according to cycles of several months or even half a year or a year. The more intense and market-oriented the online merchant competition is, the greater the gap and contrast with the offline production plan becomes. The gap between planned bulk foreign trade orders for international demand and scattered online sales orders is also greater. In this case, the main factories still rely on Walmart and Carrefour. The extreme marketization of the pure circulation side online does not change the lag and high planning of the production side. So, is there a model that can change the lag and high rigidity of the production side's planning? I think we still have to make a fuss about changes on the demand side.

Assuming we can give front-end consumers a little more patience and a willingness to coordinate with others, giving up part of the "what you see is what you get" and the impulse of "wanting it right now," then we have the opportunity to use recommendations between people, relationships between people, and similarities in interests to do people-based aggregation, aggregating each person's personalized needs into planned demands with a certain amount of time flexibility. The degree of aggregation of this demand may not be as large as the half-year bulk orders of Walmart, but it is enough to make a factory production line operate economically. In this way, we have the opportunity to break down a large Walmart order into 50 small batch orders. The back-end production can also get rid of its dependence on Walmart, change the original model of authorized manufacturers fully planned production, and then let dozens of manufacturers with production capacity compete in the market for these 50 batch orders aggregated according to various different demands.

If this can be done, then the contradiction between the highly marketized online circulation side and the rigid planned production side can also be alleviated. What replaces it is the integration of more planned demand and a more market-oriented supply side. The front-end and back-end information will be more comprehensively connected, eliminating the mismatch between demand and production, and even helping our traditional production get rid of its dependence on traditional Walmart-like supermarkets, finding its own differentiation in the differentiated batch aggregation of demand, and realizing a real supply-side revolution. From rigid to flexible, from homogeneous to differentiated and characteristic, from lagging planning to semi-marketization synchronized with demand.