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Op-Ed: Global shortages, supply chains, Just In Time, and why nobody does real business anymore

The world is faced with a stark, unmistakeable choice – Do real business, or do this. Not much of a choice, is it?

© REUTERS/Tobias Schwarz
© REUTERS/Tobias Schwarz

There are global shortages of everything from computer chips to dog food. The pandemic disrupted everything. The global supply chains also ran into their own issues, not least of which is a methodology which can’t manage disruptions. A global business culture based on making profits outside business operations doesn’t help much, either.

There’s a current New York Times article which describes and explains the basics of the current situation in murderous detail. The famous Just In Time methodology, which works on slick, low-cost minimal-delay movement of goods came unstuck.

Just In Time, which emphasizes fast movement of goods and minimal inventories, isn’t handling the situation very well. It’s not geared to meeting sudden increases in demand, and a range of global trade issues, notably tariffs and Brexit, certainly haven’t helped.

(To be fair, Just In Time is a good theory, and works well in an average demand pressure environment, but its weaknesses have been highlighted by an unholy mix of materials shortages and a large backlog of demand. Just In Time will be re-vindicated by incoming automation and the ability to produce anything anywhere “just in time”, but definitely not in this situation.)   

That’s a very large problem, but it’s nothing like the whole problem.  The other core problem, for which Just In Time is partly responsible, is lack of depth in supply. Low inventories do save money and space; they don’t, however, allow any capacity to manage top-to-bottom large scale supply chain demands. Cascades of back orders trace back to baseline production and materials shortages.

That’s becoming all too obvious. The many shortages are quite real, and hitting businesses. Suppliers can’t supply things they don’t have or can’t produce because of shortages. The lowest-cost-possible schematic has screwed up royally simply by not having enough inventories.

The other problem – Businesses which don’t do business anymore

The endless cost and jobs-cutting culture which is so sincerely despised worldwide is the other elephant in the machinery. Business culture has become a routine of money-making maneuvers outside the “hard business” environment.

Widget-makers make widgets, but they spend a lot more time buying back shares and managing costs. This isn’t their core business; it’s routine accountancy. American companies spent trillions on share buybacks to increase the value of stock. Those trillions could and should have gone in to expanding the business, but they didn’t. This is “shrinkage by other means”.

It’s also the antithesis of doing actual business at all. Share buybacks are only one case, but they’re a good example. To hammer the obvious about buybacks:

  • Shares in large volumes make money if they go up through profits, too.
  • Cosmetic share value manipulation may or may not be credible in the market.
  • Real stock values are trading values, not necessarily the result of buybacks or anything else.

Much the same applies to the labour market and physical conduct of business:

  • Losing trained people in the name of cost cutting is like cutting off your legs to save on shoes and socks.
  • To expand, you need more people to handle increased business capacity, not less people.
  • Lousy pay and working conditions simply encourages turnover, and that’s extremely expensive, particularly over longer time frames.

This is all cost-based. It’s about looking good at meetings; a very shallow, low attention span process. It’s almost daily routine.  The ritual is that some dear little gerbil in a suit produces an idea for saving money. This idea  is pre-approved by whatever senile imbecile is trying to endear itself to majority shareholders.

The idea is inevitably all about cutting costs by sacking people, trimming benefits, or “delivering value to shareholders”. It is quite specifically NOT, and never, about doing more business. This process is older than most of the hills, and it’s getting very stale. The stench of lack of business ideas is perceptible.

It’s also uncompetitive on a mindboggling scale. The business isn’t growing. It’s eating itself in dollar terms, consuming capital which could go into much more productive options.

This methodology can deliver money for some people. Its main function is to win Brownie points for easily replaceable middle managers and C level hacks. What it can’t do (and never does) is grow business.

…So how does this relate to shortages, you ask?

These self-fossilizing businesses lack capacity due to the culture. Their resource-impoverished core business, long neglected, is at minimal strength to manage loads. So the strings, band aids and glue that hold supply chains together don’t work too well. Any increase in demand can overload them. They have too few people, and the businesses which supply them are in much the same situation, for the same reasons.

There’s another, inherent, problem here. The whole idea of mass production is to deliver supplies in higher volumes at minimal cost. Inventories are supposed to ensure supply. Turning each product into a boutique process, supplied Just In Time, is the antithesis of that idea.

Fiddling costs in the name of adding a little sugar for stockholders is absurd. Which would you rather do – Sell 1,000,000 units for $5 per unit, or make $250,000 on some capacity-killing accounting scam that won’t let you ever produce 1,000,000 units?

It’s dumb, but it works, and some people believe in it. This stagnant, venal culture is killing real business and replacing it with pseudo-business that produces nothing at great expense. The world is faced with a stark, unmistakeable choice – Do real business, or do this. Not much of a choice, is it?

Written By

Editor-at-Large based in Sydney, Australia.

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