Inventory and Supply Chains

Timothy Birdnow

Good explanation of how it works. And this has to operate at every conceivable level, from the mom-and-pop business to the giant mega corporation. Starting with raw materials through the sales floor. At every step the process has to be synchronized. It's why the Soviet Union used to either have a glut of shoddy products or nothing at all. They couldn't plan this in a boardroom, try as they might.

Courtesy of Sherrie Mathieson

It is a lot like bringing a nuclear power plant back online, all systems must come up at once, at the same levels and at the same timing.
Now, think about how a nation under communism is like that global supply chain.
Something we in manufacturing have dealt with since the implementation of the "pull” system inventory system, rather than a "push” system.
Push systems work on the production capacity of the producer – they run until the warehouse is full regardless of the consumption of the inventory. They are designed to maximize the efficiency of the producer, not the efficiency of the entire production system. In the bad old days, it was not uncommon to see piles of inventory stacked up between operations in a factory or racks full of pallets of product that sit for long periods of time before being used, then the faster operations have to stop and wait on the slower ones.
Pull systems set inventory levels based on the consumption of the next downstream operation. As product is depleted from storage, that is the amount of signal sent to the preceding operation to produce to refill the inventory queue. Pull systems are designed to maximize the efficiency of the entire system or production process by keeping product moving through the production process and avoiding investment in materials that just sit around collecting dust. Adding value is the name of the game, sitting product is dead money, something to be avoided.
Push systems are analogous to communist systems, where the plan determines inventory and balances (it never does) supply and demand.
Pull systems are analogous to capitalist systems where price is the signal to pull inventory to balance supply and demand.
It is not a perfect analogy but pretty close.
The point being is that Biden can’t issue a bunch of executive orders to restart an entire economy because there is no plan for this. Pushing by focusing on links in the chain guarantees imbalances and bottlenecks because there is simply not enough brain or computing power in concentration to foresee every single variable of an infinitely variable entity the size of a national economy.
The economy must restart itself and the best thing government can do is to get out of the way and let the market work to pull inventory through the system at the most efficient rate.
As the Special Operations community says, "Slow is smooth. Smooth is fast.”

I used to be a grocery store manager many years ago. Inventory management was a constant struggle. It was necessary to have what you needed on hand and ONLY what you needed on hand because otherwise you were tying up money that could be earning interest. So the cardinal rule of ordering was to order as little as you could without running out.

That required experience and judgment and could only be done at the very local level.

We had a bread company come in who had automatic ordering. The system kept reording stuff, and we were throwing massive amounts of bread away every day (it was shameful.) We didn't mind that much as they would compensate the over-order, but a lot of that bread could have gone to the needy (we couldn't donate it because we had to wait for their rep to show up.)

That company was losing it's shirt. I think it is out of business now.

That's what happens when you rely solely on numbers and not on the intangibles of knowing the customers and their needs - and the market.

Socialism always assumes a clockwork demand. They try to make it a hard science. But it isn't. It is a myriad of personal choices and pressures.

If it snows people will buy bread. You can't predict snowfall more than a day or two out (except maybe in Alaska or whatnot). That shoots any sort of automated ordering system to hell.

There are a lot of other things that can trigger buying - or suppress it. A nice day can lead to you running out of beer.

So it has to be local and it has to be handled by intelligence.

Ordering was and is an art.

If just that one aspect of things is screwed up the producers cannot figure out how to produce adequately. Their natural response will be to cut production to avoid waste (and getting in trouble). Shortages are the inevitable outcome of a command economy as a result.

Posted by: Timothy Birdnow at 11:26 AM | Comments (4) | Add Comment
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