The Signal June 4, 2024

Mesoeconomics: A Data-Centric Approach to Supply Chain Strategy 

Centered on the study of networks, mesoeconomics is supply chain strategy for the digital age. With the rise of massive data sets and genAI tools, this new way of thinking could help leaders win out over competitors hung up on traditional frameworks.

Kevin O'Marah Avatar
Kevin O'Marah
Strategy

Financial Times columnist Gillian Tett wrote an intriguing piece on how studying networks is better than either micro or macroeconomics for understanding how economies work in practice. It followed an earlier article from Cambridge University economist and venture capitalist Bill Janeway titled “The Rise of Mesoeconomics,” which points out how digitization is creating new data sets that enable the quantitative analysis of new theoretical models. 

For supply chain leaders navigating a data revolution, this is an invitation to think more deeply and ambitiously about data-driven sourcing, manufacturing, and channel strategies. 

Resilience Born but Profit Focused 

The idea of mesoconomics goes back to at least 2012 when the World Economic Forum posted an article defining it as the study of “the actual web of contracts, formal or informal, in … institutions.” This is an area supply chain people know and manage at a very practical level. Post-Covid, practitioners concentrated on understanding supply network data to spot logistics bottlenecks, upper-tier sourcing risks, and inventory options to build resilience. 

Now, with emerging data available on shipment visibility, channel sales, and field service status, it is time to extend this logic. Supply chain strategy is now a closed loop and includes manufacturing networks, omnichannel fulfillment, social media analytics, and aftermarket service. Success stories from BMW, Unilever, and Cisco point to a future governed less by the old principles of buy-low-sell-high and more oriented toward building profit platforms for the long run. 

And profit-focused applications of mesoeconomics are inventing new models based on the power of networks. One example is SHEIN. The Chinese apparel brand built a demand management network of around 14,000 social media influencers and matched it with a supply management ecosystem comprising 6,000 independent factories. The operation can produce 42,000 new styles per week at prices 50-65% lower than fast-fashion rival Zara. 

Zero100 Loop model of a supply/demand chain showing examples of how SHEIN approaches each function. 
Source: Zero100

Apple is another example. Along with TSMC, Foxconn, Pegatron, and others, Apple created $3T in market cap with a largely sole-sourced, vertically integrated supply chain that sustains an ecosystem of hardware, software, and content which commands extraordinary customer loyalty and price insensitivity. 

The same principles are also being applied by others. Schneider Electric, for example, helps its network of suppliers decarbonize operations and, in the process, drives demand for its own electrification offerings. Maersk invests in digital tools that lessen risk for shippers while increasing value and customer loyalty and reducing margin pressure during times of vessel overcapacity. Procter & Gamble has built a supplier portal that helps key partners work faster and more cost-effectively on new product innovation. The common thread in all these examples is thinking beyond the adversarial basics of traditional contracting to find ways to strengthen ties in the network. 

Mesoeconomics Is About Winning the War, Not Just the Battle 

Classical economics is notoriously oversimplified, justifying the self-destructive dynamic of transactional partner relationships chasing short-term gains while ruining the deal for longer-term profit. Boeing shows what this can look like in reality.  Outsourcing for lower costs and faster time to market may have made sense for the Dreamliner 20 years ago, but it looks like a mistake now. Instead of building a keiretsu supplier system over many years like Toyota, Boeing relied on relationships that weren’t robust. The Dreamliner suffered delays and overruns, and lasting network weaknesses are now being blamed for quality failures. 

The same oversimplified approach to contracts could explain why carriers and shippers take turns abusing power as trucking capacity balances swing back and forth through time, ultimately destroying network value for all. It may also prove to be the undoing of the United Auto Workers, which is winning some public battles now but laying the groundwork for a robotic revolution that could decimate its membership in the long run. 

In business, where reliability matters, long-termism can build trust that adds value to a network. 

Supply Chain Strategy Is a Game, and It Runs on Data 

Mesoeconomics is really just a fancy word for supply chain strategy in the digital age. It’s a multiplayer game that, until recently, was played on PowerPoint.  

Now, with massive data sets and emerging genAI tools, mesoeconomics will become a powerful tool for supply chain leaders, enabling them to assemble data, build conceptual network models, and play the game to win.