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First the toilet paper and computer chips went missing, now it’s olive oil and airplane seats. Four years after the onset of the COVID-19 pandemic, shortages of products and services are becoming more frequent — a consequence not just of the global health crisis, but also wars, trade sanctions, software failures, and natural disasters. In response, companies and policymakers around the world are having to rethink where critical materials come from and how they get delivered.

It’s not easy to do. As Matthew Jackson, a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR) who studies complex networks in various forms, says, we’re just beginning to build a clearer picture of what the world’s supply chains look like, including where there are intersections that could lead to costly bottlenecks. Here, Jackson, who is the William D. Eberle Professor of Economics in the School of Humanities and Sciences, discusses why supply chains are hard to fix, what’s being done to strengthen them, and how his recent research helps businesses and policymakers move closer to solutions.

Consumers first woke up to supply chain issues when toilet paper disappeared from store shelves in March 2020. Were businesses also taken by surprise?

We’ve seen, and continue to see, disruptions in the supply of products and services on a scale that most people alive today have never experienced before — and we have not seen since the Second World War. Some companies, like Starbucks, have long dealt with supply chain risks because coffee beans grow in some countries where there is a lot of volatility. But others haven’t been prepared. The risks, for example, weren’t on the radar screens of Japanese car manufacturers when the 2011 tsunami destroyed several plants that made automobile parts. It took Toyota, Honda, Nissan and others more than a year to fully recover.

If supply chain disruptions are our new reality, why is addressing them so difficult?

Supply chains are much more diverse geographically — and complex — than they used to be. They can be tens or hundreds of companies deep. The parts needed to build the most advanced integrated circuit boards, for example, cross dozens of international borders before they reach Taiwan for assembly.

Right now, information about the breadth and depth of supply chains is just emerging so it’s a challenge for companies to know where all of the risks are. If I’m a car manufacturer looking to diversify my suppliers of airbags, it’s not enough to simply contract with three different airbag manufacturers. What if all three are buying their airbag fabric from the same company? Being more knowledgeable about where all of the inputs into a product come from can be the most vital step in trying to manage supply networks.

How does your research — with Matthew Elliott of the University of Cambridge — help close this information gap?

Research has looked at the long-term effects of disruptions, but not the short-term effects — and there’s a big contrast between the two. For example, suppose that I run a company that sells a product that costs several hundred dollars and uses the kind of cheap computer chips that run most electronics, and there is a crisis that closes several key plants that produce those chips. The disruption in the supply of those chips in the long run might mean that some new plants are needed to produce those chips and that the cost of those chips goes up a few cents as a result. As a fraction of my overall costs and the price of the product, that’s not a big deal for my company or my consumers.

But in the short run, I can’t build my product at all if I can’t get those chips. That’s not a two- or three-cent problem. That’s a much different, and much costlier, problem and it doesn’t just affect my product, but also all products that rely on those disrupted chips.

Matt Elliott and I develop a simple model that can be used to better understand the economic costs of short-term disruptions. You can use the model to trace all the way down a supply chain and see, for instance, that 10 percent of all cars use some chip that’s at risk of disruption and 5 percent of all refrigerators use the same chip and you just add it all up. That can be a huge impact and we estimate it can be many orders of magnitude larger than the long-run impact in a lot of situations. That’s useful for policymakers and businesses to know as they try to strengthen supply chains.

Our model also helps identify the potential bottlenecks in a supply chain. This is important because there is a premium to having more reliable supply chains. If a company wants to be sourcing an input from five different companies as opposed to one, that’s going to be more costly for them and the product’s price is going to be higher. The company has to figure out if it’s profitable for them to be charging a higher price. Figuring out if they can recoup the additional costs in the market is tricky, and our model helps them understand better these and other trade-offs.

What are businesses doing to make their supply chains more resilient?

Companies are stockpiling inventories of key inputs, which is a big shift away from the “just in time” strategy they embraced for a long time and that made their supply chains leaner and more efficient, but also increased their vulnerabilities. They’re looking at building parallel supply chains and using different technologies to produce the same good. There is also a role for artificial intelligence to play in processing the massive amounts of data that underly the world supply chain so that companies can better identify and address their vulnerabilities.

Another option that’s growing in popularity is supply chain insurance. If I’m a car maker and I’m worried about my steering wheel supplier, I can buy insurance that will give me a payout if there’s a major fire or some other disaster at my supplier’s plant and I can’t get the steering wheels that I need. However, the market for supply chain insurance is still inefficient and basic. People are trying to figure out how to better design and price policies.

What are policymakers doing to prevent shortages?

A company does not necessarily worry about how its disruption might cascade through a supply chain and cause losses well beyond its own profits. Because of this, we’re seeing governments respond in a number of different ways — not just to ensure adequate supplies, but also for national security reasons given the state of geopolitics. The United States, for example, is subsidizing the production of semiconductor chips and looking to partner with more countries to build factories for assembling them.

In the European Union, a new law if their suppliers violate human rights or environmental laws. So, if you’re Nike and you’re buying materials for shoe soles from a company that itself gets the goods it needs from a supplier you don’t even know about but who is using forced labor, under the new EU law, your Nike shoes could be banned from stores or you could face sanctions. That’s also pushing companies to learn more about their supply chains. It just underscores the need for a better understanding of the world’s suppliers and how they are interconnected.

Globalization and outsourcing parts have made many companies much more productive and enabled them to offer us increasingly sophisticated and complex products. But it also makes them more vulnerable to disruptions. These are trade-offs that we’ll be living with more as the world learns to better manage supply chains.

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*Jackson serves on the advisory board at and holds a financial interest in Altana AI, a supply chain tech startup.