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Comment by dang-its-dumb | Hacker News Reader

I've heard that our quest for incessant optimization in warehousing and inventory management means this pandemic is catching everyone flat-footed.

The McKinsey consultants of the world have pushed for more and more "turns" (how many times your inventory turns over completely in a warehouse - most orgs aim for 3+ turns a year) and minimizing your "cash to cash" cycle (you pay for manufactured inventory, you need too turn it BACK to cash QUICKLY - don't have it sitting on warehouse shelves)

Now we don't have enough slack in the supply chain. Doesn't really matter much (except economically) for iPhones etc - but means a lot when you're running JIT (just-in-time) inventory management for things like hand sanitizer or medical masks.

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Then again, all those people who can’t buy these products now due to temporary shortage aren’t going to just forget that they wanted to buy a new iPhone.

I believe there was a similar reason for the auto industry to come back so strongly after the 2008 financial crisis. All those people who held off on car purchases in hard times exited the crisis with aging vehicles that needed to be replaced.

I would think that this sort of shortage would harm a consumables company like Coca-Cola a lot more than an “appliance” company like Apple, Toyota, or Whirlpool.

Sure they will.

Consumers in China who wanted a new iPhone would probably rather stay at home than go out to buy a discretionary consumer device like an iPhone. Many will have less income with which to get by, meaning they wouldn't be able to afford an iPhone even if they were willing to go buy one. And with Apple stores closed in China, it's kind of tough to buy an iPhone there.

Meanwhile, people who really need a smartphone elsewhere will take this opportunity to buy a different phone.

Economic shocks have long-lasting aftereffects. Don't assume that the result of this hit to iPhone production is simply a phase shift of Apple's product cycle and consumer demand. For example, Apple will probably take cash away from its next stock buyback in order to cover the upfront costs of this hit to its revenue. And they may not be able to provide the kind of pricing and incentives that they were planning to provide before the virus hit.

I'm not so sure. So much consumption these days seems to be discretionary.

For your example in the auto industry, one large reason the industry bounced back was because of the Cash for Clunkers program. The US government spent $3 billion to make sure the auto industry would "come back strongly."

Without similar stimulus here, I don't see how the bottom line of Apple and other companies will escape being affected.

Building slack into the supply chain would be a very inefficient way to stockpile for emergencies, compared to actually stockpiling for emergencies. As you've said, it would make no sense in the case of the iPhone. The McKinseys of the world are absolutely right about this.

The problem is that the old system created a positive externality (coincidentally storing a bit of inventory for emergencies, though inefficiently and in no way planned) that the new one doesn't. It's the sort of thing that should be fixed by government incentives.

There is really no other way to improve supply chain efficiency in real time than to bring everything as JIT as possible. Inventory turnover is an entirely different concept. It is dependent on the industry. Hand sanitizers and such have a very high turnover already (they're what the marketing students call fast moving consumer goods). It's true that they squeezed a shit ton of slack from it over the past few decades, but demand for these products has always been high and markets have consistently kept opening up everywhere to meet it.

So you can have JIT implemented in a slow turnover industry - imagine ferrari having a JIT assembly line that gives you your vehicle in less than a day after you place your order - but it doesn't make economic sense.

That said, introducing slack into the industry is not useful. What you need is increase in inventory stockpiling. And as any good financial analyst would tell you, an increasing stockpile number either implies a big future order coming through or that your product isn't selling. With consumer staples companies (the GICS sector term for companies that manufacture fmcg products like toothpaste and hand sanitisers), there is hardly a new market opening or some giant ass retailer coming out of nowhere to place large orders. So stockpiling almost certainly means slowing sales.

It's an interesting thought. Though I wonder if they're better off worrying about around the globe redundancy of supply and production chains rather than buffer size. Important things should be manufactured in many locations.

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