Monday, December 15, 2008

Stock out annoyances

In the process of re-insulating our attic I had to make numerous trips to Lowes and Home Depot. Invariably one or the other would stock-out of what I needed: 16-inch wide batts. It's a little annoying and exasperating: I've experienced it in grocery stores - Whole Foods or Giant or Safeway, it doesn't matter. Is lean inventories having an adverse effects on sales? It's hard to say but I did come across an excellent Economist Survey on logistics.

... supply chains harbour dangers too, and managing risk is becoming a pressing issue. A number of alarm bells have started ringing. Most firms have been organising their logistics to make themselves leaner. Many now carry little or no inventory to save money. Indeed, sometimes their entire inventory consists of what is moving from the factory directly to the consumer in the back of a truck or an aeroplane. If something goes wrong—and it often does—business will quickly grind to a halt.

From the concluding article When the Chain Breaks:
Britain's Cranfield University is running a research programme into the fragility of supply chains, prompted by the British government after protests over high fuel costs in 2000. Lorry drivers blockaded fuel-delivery depots, bringing many businesses to a standstill. “I reckon this was the first time the government realised there were such things as supply chains, and just how fragile they had become,” Mr Christopher told a recent conference.

Some people even suggest that supply chains should be regulated, a bit like public utilities, because countries have become so highly dependent on private-sector production infrastructure. Barry Lynn, author of a book on this subject, “End of the Line”, thinks that perhaps companies should be required to limit their outsourcing and use more than one supplier of essential items. In his book, he argues that globalisation and outsourcing provide only a temporary benefit to consumers because the companies that form part of supply chains will buy each other up in pursuit of ever greater efficiency, and thus lose most of their flexibility.

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