Comment by conjecTech | Hacker News Reader

Comment by conjecTech | Hacker News Reader

This is an issue with latency, not throughput. Our supply chain is actually running at considerably higher throughput than we ever have before. The ports provide numbers for activity on their websites - Long Beach and Oakland are both operating at 30% higher capacity than they were pre-pandemic.

What has changed is the queues and the pricing. The shortages we are feeling are the gaps that have surfaced between when retailers trigger reorders and when they are replenished. They grew accustomed to being able to do that just-in-time as forecasted inventory went to 0, but the added delays have made this much harder.

Additionally, the shipping prices have made many things simply uneconomic to ship. I saw an analysis on the difference in cost recently for a grill: prior to the pandemic, shipping from China to LA contributed $5 to its price, with shipping costs up 8x, that's now $40. Rather than fulfill orders at negative margins, many people are simply waiting for lower prices after the holidays. It's not that they're being held up in transit, these things aren't being shipped to begin with.

An interesting take. During the just in time days, were the goods accumulated somewhere ready to satisfy orders or were they all in transit?

I'm sure it varies somewhat from company to company, but the general ethos was to reduce warehousing to an absolute minimum. From a corporate finance perspective, this has a bunch of benefits. Excess inventory is effectively unproductive capital. Additionally, it's costly to store and is subject to theft and damage as well. A lot of the focus on JIT came out of post-war Japan where capital was scarce and this was done out of necessity.

In some cases, an incredibly aggressive supply chain and payment schedule can actually create financing for a company. Aswath Damodaran's corporate finance class mentions one of the major alkaline battery producers as an example. At any point, they only have 2 days worth of production in inventory, and they require payment within ~7 days from clients, while their own suppliers are paid after 30 days. That means at any point, they are holding about 20 days of revenue worth of cash without paying any interest.

Walmart focuses on fast inventory turnover in their stores. They get paid by customers at point of sale, but pay suppliers months later. During that interval they can invest the float and earn interest. So to a limited extent they literally can lose money on every sale but make it up in volume.

Holy cow. That saying of "make it up in volume" finally makes sense in so many places it previously seemed infeasible.

Its not purely cashIn-cashOut, there is a time property as well, and various forms of investment can make cash_t1>cash_t0

Yep. Some companies plan this way from the start, but almost all do it once they get mature enough where these type of financial engineering optimizations can really make sense to spend time and expertise on.

I have read that something like 5% of Starbucks' accounting liabilities are gift cards that have not yet been redeemed. So again in a simplified financial view, that is a loan at 0% interest, and some percentage of that "loan" will never get called in.

I guarantee you they have models about what percent and at what rate over time that "loan" actually gets "called in" (redeemed for coffee and store employees' time).

Of course, it costs money to create these cards, build out the tech stack behind them, deal with fraud monitoring, etc. I am sure many millions were spent on this and continues to be spent on it, yet the gift card is free. You don't need to pay an extra penny to use the card. That's paid for by people who don't redeem all the value on the cards as well as the spread between payment and redemption, so someone must have run the numbers and decided whether building this infrastructure is worth it.

It's probably paid for by the better fee structure on payment processing: credit card processing is generally a base fee + a percent of the purchase. By having people put $20 on a Starbucks card once rather than making 5 different $4 transactions, they reduce the fixed charge they incur by 80%.

That's another good point, I didn't think of that cost reduction.

Wal-Mart most certainly does not lose money on every sale. Its gross margins have been very stable at around 24-25% every quarter for the past 10 years, including the pandemic. The interest it makes on the float, while significant to you or I, is mostly a rounding error in the interest-rate environment we're currently in.

https://ycharts.com/companies/WMT/gross_profit_margin

Anecdote.

I have a few supermarket chains within reasonable shopping distance. The higher end one seems to be low in stock of a few staple items.

The more mid-tier grocer has no shortages that I saw.

My guess is they warehouse things differently.

> prior to the pandemic, shipping from China to LA

Perhaps it’s time for the US to finally stop doing that.

interesting how one innocent looking property can affect a system

news report of 10 days for tankers to unload cargo in california too

That latency also reduces throughout. While a freighter is anchored waiting to unload it's not carrying other cargo. We have the same number of ships, but the effective number of ships has been slashed.

It's a good observation, but it only impacts throughput when ship capacity becomes the limiting factor. If you added more ships right now (or shortened wait times), it wouldn't change throughput.

Do people allocate emergency space on sea pods to free ships ?

What's a sea pod?

some term I made up to describe temporary floating ground area (polders ?)

There are barges which could hold some cargo temporarily. But there's no practical way to move most cargo from a freighter to a barge without the type of large cranes found in ports. There are only a few floating cranes in the world large enough to even try.

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