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Comment by wireprotocol | Hacker News Reader

There's no way to win selling cheap but critical supplies on the spot market. If the price goes down your customers flee. If the price goes up you can't charge the higher price because that would be "gouging".

So his solution is contracts. The fact that people aren't signing them shows their true intentions.

What I can't quite figure out is why, during the good times, a $0.10 consumable for a $4000 operation needs to be made more efficient so badly that the only way to produce the thing is in a communist country with no environmental controls.

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What I can't quite figure out ...

That's simple to figure out, and it is not specific to hospitals. Some purchasing manager says "hmmm ... I'm paying $100,000 per year for this product. But I can buy it overseas for only $20,000". Score!

At the end of the year, that purchasing manager writes a report to his manager saying something like "saved the hospital $10,000,000 by optimizing our supply chain". Or some such.

How much some random operation costs doesn't factor into his decisions at all. That's not what he's being compensated for.

The only way this mindset changes is if top management insists on it. But usually top management is constantly pushing to cut costs. Their bonuses depend on it.

Yeah, this is the kind of way I considered this article. There's so many operations including medical hospitals purchasers that are trying to follow the current mantra of as little idle inventory and wastage of inventory on the shelf as possible for as cheap as possible. This makes sense for people purchasing finished goods but doesn't make as much sense for people making finished goods who may need primary material goods in quantities and timings that do not scale well in increments. It also makes no sense from a machining and tooling efficiency investment to replace a particular operation with a machine to do it 100x as fast if making 100x of the particular sub-assembly completely overwhelms the maximum capacity of the next step unless it is also improved.

There's just a minimum volume cost to most finished goods below which it just costs money to do the work at all. Sure if the volumes go way up there's economy of scale at work and the fixed costs of scaling up go down so prices can be reduced in a way that doesn't affect the manufacturing business to be more competitive but there's a bottom in the other direction.

You can insulate that with long term contracts from the buyers so that you can get favorable contracts with the suppliers, but when you have purchasers going quarter to quarter and saying lowest price = best value you just are playing a totally different game for a smaller manufacturer. The current model of a small American manufacturing business seems to currently reward doing the same boring product at the same boring volume so that the company will exist in 20 or 30 years by investing in specialist equipment that does one or more steps of manufacturing better than generalist equipment and creating a niche stable market for yourself as the depreciation/fixed cost of that specialist equipment per total units made approaches next to nothing.

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