The alternative is forcing some slack in the supply chain but that comes at a significant cost to consumers.
Not sure about you, but I’d rather pay less not more for things, even if it means a temporary price increase or even shortage.
I’m amused by this comment.
You think the squeeze and now the glut didn’t come at a significant cost to consumers and the economy as a whole?
It seems pretty clear after the massive failure at the start of the pandemic that just-in-time went too far and there is not enough slack in the supply chain at all level. Even from a purely systemic look, the wild oscillation we see right now should be proof enough that the system is significantly under-dampened.
Paying 10% more for a product in perpetuity costs a lot more than a 12 to 24 month period where prices double. And for non-essential goods, the option is for some customers to simple delay purchase.
And you’re forgetting it works in both directions. Consumers may see temporary high prices but they often see temporary low prices during supply chain recovery.
And again, how do you accurately predict the future? Demand can double pretty quickly. Having 10% slack (and the cost of it) would have dampened higher prices somewhat, but now you’re paying higher prices all the time and slightly less high prices when things go sideways. Doesn’t seem like a good deal at all.
I’d much prefer the free market approach where there are multiple actors each making different bets on future demand than some overarching rule about how future demand should be planned for (thats how we get famines).
The producers who bet on increased demand (or shrinking supply from competitors) get handsomely rewarded for the bet.
JIT manufacturing gains are far under 10%. It’s mostly advantageous from a capital flow point of view. At this point, considering the overall brittleness introduced, it’s not obvious to me there ever was gained at all if you consider both the up and the down.
It’s pretty obvious that at this point the purely free market approach is as successful for manufacturing as it was for banking. How can we even talk about free markets when the government just saves everyone each time a large crisis happens?
People had to pay more for cars? The cost of airline tickets went up? Lumbar prices went up?
I mean, don’t see many consequences for that brittleness. Inconvenience sure.
And I mean, if you think it’s the wrong move then there is an opportunity for you to get very rich - either start a company selling for higher prices to account for slack or heavily invest in ones that do.
Interestingly, food production is heavely planned through regulation, subsidies and incentives in most countries precisely because the free market cannot be trusted with such a sensitive matter. Famines cause riots and that's bad for buisness.
Most companies seem to not know that nuance.
Toyota's tier-two suppliers surely know it pretty well. Their suppliers a little less well. And so on, down through the supply chain.
It isn't the case that Toyota has some magical vision (though they are clear-thinkers). The key difference is that Toyota is at the end of the supply chain for all their suppliers.
Think of pulling an elastic tether on a solid object, which pulls an elastic tether on a solid object, which pulls an elastic tether on a solid object. Friction accumulates and it doesn't disperse evenly.
So the Toyota model is great iff you are Toyota or similar OEM. With diminishing returns as you progress further down the supply chain.
Ah, yes, this tired old "we should incur broad and hard to quantify bad things to avoid some small but easy to quantify bad thing" that is ever popular among people who should be smart enough to know better.
I agree that the system does seem somewhat under dampened but without a serious attempt at forecasting what the actual cost of damping it is I see no reason to change the status quo.