The West Coast port slowdown is giving retailers a big headache, and, in some cases, costing them big bucks.
|Scooped by Luigi Cappel|
Imagine if McDonald's couldn't serve you french fries, or you couldn't get bread at your local grocer, or ink for your printer, all those little things that you take for granted you don't need to stock, because the retailer will always have it for you.
Have you ever been to a retailer to buy something and find that it's out of stock? There are two reasons for this. One is the person managing the inventory wasn't watching their stock turn, or demand. Another is seasonal or promotional activity that placed more demand on a product that required more stock than normal, for example a sudden heat wave would result in greater demand for ice cream and cold drinks.
Over the last 30 years with the benefit of EDI and other technologies that have created a manufacturing and delivery chain where there is information and risk sharing between growth and manufacturing, freight and distribution and the retail point of sale data, we have developed into a JIT or Just in Time economy. Everything has become finely tuned and when things are going well, this reduces costs at each level of the value chain. When things go wrong that can cause chaos very quickly, especially in small or niche markets.
Here are a few examples:
1. McDonalds had problems with potatoes for their fries in Venezuela not turning up in time due to a labour dispute at west Coast ports in the USA. They only carry enough potatoes to meet a short period of time, in order to meet their commitments to fresh product.
2. A supermarket chain in Australia buys bananas from the farm cooperative in Equador before they are even picked. A freight hold up of a week means the produce ripens to soon by the time it gets to the supermarket and they have to throw away product by the container-load.
3. A car manufacturer has 10,000 cars in production that can't leave the factory because a maintenance survey in a factory in Indonesia discovered a fault in the factory and subsequently had insufficient components to produce a component for the in-car entertainment system, halting production of a whole batch of cars in Japan. Because these contracts were let out 2 years in advance, there was no quick solution to replace them.
4. A slip on a New Zealand road took 3 days to repair and as a consequence a lettuce manufacturer could not get their produce to a fast food retail chain in time and the alternate route was not suitable for the large refrigerated trucks to drive though.
5. A brand new large supermarket couldn't open because a container of receipt paper was incorrectly marked at a wharf in SIngapore and this wasn't noticed as being missing in the testing of the new POS Scanning System in the store, meaning it was too late to find an alternative short term supplier for the first day of the official launch, with queues of customers and dignitaries waiting to go.
Almost everything we do today is based on Just In Time. When it goes well, we benefit at all levels of the value chain in productivity, freshness and quality of product, negotiations and relationships between business partners, optimized freight management, optimized road networks and much more. However when one component of this value chain breaks down, the impact is major.
The results of those little chinks, traffic congestion, a labor strike, a software glitch, above average demand for a product and our delicate balance can tip and next thing you know there are significant ramifications to business and consumers. The costs of getting it right are significant. Perhaps sometimes our drive for perfection can also be our Achilles heal.