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Just in time shipping and your family’s survival
When Trucks Stop, America Stops (pdf)
Also Eric deCarbonnel's *****Just-in-time Inventory System Facing Collapse*****
Back in the day when I clothed my kids in Gymboree from head to toe, the sales clerks could almost always manage to find the size I needed by, “checking in the back.” Every store has a stockroom in the back where, presumably, massive quantities of extra products are shelved. Well, a couple of years ago I was surprised to find out that this isn’t true, Gymboree notwithstanding.
In fact, most stores operate on a system known as, “just in time shipping.” In other words, products arrive just in time to be put on the shelves to replace whatever has been purchased. That’s why, when a store has a particularly good sale on an item, once it’s sold out, it might be out of stock for days or weeks. There are no extras hidden in the back room. Retailers keep their inventories to a bare minimum in order to save money and to not end up with a stockpile of a product that isn’t selling.
One impressive feature of this system is that it is run by computers and can actually forecast which products will be needed where and when. For example, when the weather in a certain area takes a turn toward higher temperatures, the system will automatically begin shipping items such as sun block and beach toys. An oncoming hurricane will trigger the shipment of bottled water, baby formula and ice. You can read more about this impressive system here.
Now, what does this information have to do with your family’s survival and preparedness?
.
.
.
.
.
.
In fact, most stores operate on a system known as, “just in time shipping.” In other words, products arrive just in time to be put on the shelves to replace whatever has been purchased. That’s why, when a store has a particularly good sale on an item, once it’s sold out, it might be out of stock for days or weeks. There are no extras hidden in the back room. Retailers keep their inventories to a bare minimum in order to save money and to not end up with a stockpile of a product that isn’t selling.
One impressive feature of this system is that it is run by computers and can actually forecast which products will be needed where and when. For example, when the weather in a certain area takes a turn toward higher temperatures, the system will automatically begin shipping items such as sun block and beach toys. An oncoming hurricane will trigger the shipment of bottled water, baby formula and ice. You can read more about this impressive system here.
Now, what does this information have to do with your family’s survival and preparedness?
.
.
.
.
.
.
Also Eric deCarbonnel's *****Just-in-time Inventory System Facing Collapse*****
Twocents.blogs.com reports about The Battle for Inventory.
(emphasis mine) [my comment]
January 31, 2008
The Battle for Inventory
...
Since large-scale shifts in acreage do not appear to be in the offing and USDA projections show continued tightness in stocks for many commodities well into 2009, users of basic commodities may be increasingly forced to enter into a very different kind of "battle" this year, a battle for inventory.
The battle for inventory could reverse deeply held convictions that have been at the heart of world business practices for the better part of a generation. The last comparable shift in attitudes occurred in 1980-81. It came at the end of an era, 1973-1981, when almost any physical asset, from precious metals to art to real estate, had a very strong tendency to appreciate in value. Having a little extra inventory, therefore, came to be viewed as a positive thing by businesses and investors alike. In the grain business, most farmers with a little extra corn or soybeans felt that they could sell on the next bounce, and merchandisers and end users viewed excess inventory on the books as a cushion against supply disruptions or the next wave of buying by the Soviet Union. Many businesses were not fully aware of how expensive this unneeded inventory was because they often did not have the accounting practices (much less software) that gave them hard data on how much inventory they really needed on a week-by-week basis, and they certainly did not fully segregate the cost of borrowing to finance that unneeded inventory.
The Moment of Truth
By 1980, the American public had decided that they too wanted to invest in appreciating "things" like corn, soybeans, pork bellies and precious metals. A summer drought that year caught the attention of this eager public, and spec longs poured into the corn and soybean markets. Open interest surged to record levels in corn, which traded near its all-time highs all the way through the tail end of harvest, even though the drought had long since ended by then and overall supplies, including grain held in government programs, were huge. The higher harvest prices induced a flood of farmer selling all through the fall, and by early December this flood of selling in the cash markets finally outweighed the flood of new spec longs pouring into futures. Margin calls started hitting the spec 'longs' instead of the grain elevator 'shorts,' and the bull market came to a crashing halt. So too did the idea that excess inventory was a valued asset.
Most importantly, this peak in inflationary psychology coincided with a surge in interest rates as the prime rate ticked up to 21.5% in December, 1980 [this year, we hit the peak in deflationary psychology which coincided with the prime rate dropping to 3.25%]. Farmers, merchandisers and end users came to the sudden, collective realization that the world was entering another period of protracted oversupply in grains, a situation that is actually the historic norm in America [In 2009/10, they will come to an altogether different realization]. These events coincided with the growing popularity of the 'just-in-time' inventory management practices that had been honed to near perfection by Japanese car and electronics manufacturers during the 1970s. The combination of oversupply, ultra high interest rates and new business practices quickly turned the idea of owning extra inventory into financial heresy of the highest order. Accountants, bankers and MBAs descended on America's businesses to preach the gospel of wringing every last ounce of unnecessary corn, wheat, cotton, copper or wing nuts out of every conceivable supply 'pipeline.' To a large degree, the gospel of just-in-time inventory control has prevailed right up to the present - or at least into 2007.
The Pendulum Swings Back
In 2008, however, we find ourselves in circumstances that are directly opposite those that prevailed in 1980-81. Users of commodities and manufactured goods now have business models that rely on weekly, or even daily, calculations of their precise inventory needs. The globalization of the past quarter century has made them comfortable with the idea that basic inputs can be bought almost instantly from cheap and liquid markets around the world and then shipped to their loading docks in a matter of days, or even hours. These models have been working very effectively for years for well-managed companies, and the occasional price spikes that have come along the way have been viewed as temporary annoyances that were likely to disappear before the next business cycle rolled around.
But the "annoyances" caused by historic rallies in 2007 and 2008 are not proving to be so temporary. They have chewed deeply into profit margins at some the world's largest food companies and resulted in permanently lost business for some smaller ones. This is causing a broad array of market participants from US farmers to millers, bakers and manufacturers to the governments of China, Russia, India and Pakistan to rethink the just-in-time mentality.A little extra inventory is starting to be seen as a good thing. Instead of bathing a balance sheet in red ink as was the case in the high interest rate environment of 1980, extra inventory in 2008 may actually save the balance sheet by being a hedge against protracted bouts of commodity inflation and supply disruption. Just-in-time is being replaced by just-in-case.
This could mean that farmers, manufacturers and countries will all begin to factor slightly higher levels of inventory into their “business models.”
Resourceinsights asks Is just-in-time nearly out of time?.
(emphasis mine) [my comment]
January 31, 2008
The Battle for Inventory
...
Since large-scale shifts in acreage do not appear to be in the offing and USDA projections show continued tightness in stocks for many commodities well into 2009, users of basic commodities may be increasingly forced to enter into a very different kind of "battle" this year, a battle for inventory.
The battle for inventory could reverse deeply held convictions that have been at the heart of world business practices for the better part of a generation. The last comparable shift in attitudes occurred in 1980-81. It came at the end of an era, 1973-1981, when almost any physical asset, from precious metals to art to real estate, had a very strong tendency to appreciate in value. Having a little extra inventory, therefore, came to be viewed as a positive thing by businesses and investors alike. In the grain business, most farmers with a little extra corn or soybeans felt that they could sell on the next bounce, and merchandisers and end users viewed excess inventory on the books as a cushion against supply disruptions or the next wave of buying by the Soviet Union. Many businesses were not fully aware of how expensive this unneeded inventory was because they often did not have the accounting practices (much less software) that gave them hard data on how much inventory they really needed on a week-by-week basis, and they certainly did not fully segregate the cost of borrowing to finance that unneeded inventory.
The Moment of Truth
By 1980, the American public had decided that they too wanted to invest in appreciating "things" like corn, soybeans, pork bellies and precious metals. A summer drought that year caught the attention of this eager public, and spec longs poured into the corn and soybean markets. Open interest surged to record levels in corn, which traded near its all-time highs all the way through the tail end of harvest, even though the drought had long since ended by then and overall supplies, including grain held in government programs, were huge. The higher harvest prices induced a flood of farmer selling all through the fall, and by early December this flood of selling in the cash markets finally outweighed the flood of new spec longs pouring into futures. Margin calls started hitting the spec 'longs' instead of the grain elevator 'shorts,' and the bull market came to a crashing halt. So too did the idea that excess inventory was a valued asset.
Most importantly, this peak in inflationary psychology coincided with a surge in interest rates as the prime rate ticked up to 21.5% in December, 1980 [this year, we hit the peak in deflationary psychology which coincided with the prime rate dropping to 3.25%]. Farmers, merchandisers and end users came to the sudden, collective realization that the world was entering another period of protracted oversupply in grains, a situation that is actually the historic norm in America [In 2009/10, they will come to an altogether different realization]. These events coincided with the growing popularity of the 'just-in-time' inventory management practices that had been honed to near perfection by Japanese car and electronics manufacturers during the 1970s. The combination of oversupply, ultra high interest rates and new business practices quickly turned the idea of owning extra inventory into financial heresy of the highest order. Accountants, bankers and MBAs descended on America's businesses to preach the gospel of wringing every last ounce of unnecessary corn, wheat, cotton, copper or wing nuts out of every conceivable supply 'pipeline.' To a large degree, the gospel of just-in-time inventory control has prevailed right up to the present - or at least into 2007.
The Pendulum Swings Back
In 2008, however, we find ourselves in circumstances that are directly opposite those that prevailed in 1980-81. Users of commodities and manufactured goods now have business models that rely on weekly, or even daily, calculations of their precise inventory needs. The globalization of the past quarter century has made them comfortable with the idea that basic inputs can be bought almost instantly from cheap and liquid markets around the world and then shipped to their loading docks in a matter of days, or even hours. These models have been working very effectively for years for well-managed companies, and the occasional price spikes that have come along the way have been viewed as temporary annoyances that were likely to disappear before the next business cycle rolled around.
But the "annoyances" caused by historic rallies in 2007 and 2008 are not proving to be so temporary. They have chewed deeply into profit margins at some the world's largest food companies and resulted in permanently lost business for some smaller ones. This is causing a broad array of market participants from US farmers to millers, bakers and manufacturers to the governments of China, Russia, India and Pakistan to rethink the just-in-time mentality.A little extra inventory is starting to be seen as a good thing. Instead of bathing a balance sheet in red ink as was the case in the high interest rate environment of 1980, extra inventory in 2008 may actually save the balance sheet by being a hedge against protracted bouts of commodity inflation and supply disruption. Just-in-time is being replaced by just-in-case.
This could mean that farmers, manufacturers and countries will all begin to factor slightly higher levels of inventory into their “business models.”
Resourceinsights asks Is just-in-time nearly out of time?.
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