Supply and Demand:The Ripple Returns

By Al Horn

Some say a little tightening of the belt is good for the soul. Some say if a little is good, more is even better. The truth of the matter - too much will only make you sore.

During the sixties and seventies manufacturing companies built plants with lots of warehouse space for product inventory, spare parts and consumables. Nobody wanted to be caught short if a big order came in. Meeting your customer's instant demand meant they would keep coming back. The same applied to your vendors and to the people that supplied them with raw materials. The gravy train kept rolling. Well, for a while, anyway.

The eighties came along and the economy hit a few bumps in the road. Suddenly the quacks of a decade before were being taken seriously. I refer to those spouting the qualities of Statistical Process Control (SPC) and principles of Just in Time (JIT).  SPC helped to eliminate waste in manufacturing processes while JIT reduced cost by minimizing inventory. In some cases, the measures were introduced half-heartedly. Many believed the road to recovery was just around the bend. No need to go overboard, just take the belt in a notch.

As the American economy begin to intertwine with the world's economy, we learn to adjust. Some adjusted better than others. The successful dot-com's of the late nineties would get a product or service to market quickly then sold out or diversified. The giants of industry began shedding some of the weight they used to throw around. Entrepreneurs scooped up companies on the verge of death, pumped a few dollars into them while scooping out the fat, then set them loose on the world - at a tidy profit. For most, success was built on SPC and JIT programs. Often, a hidden price is to be paid.

If you throw a big rock into the middle of a large pond it will produce ripples that usually die gently on sandy banks. If one side of the pond has a hard, flat, dam - the ripples will come back.

A local company I know of has survived due to cost cutting, process improvements, and inventory reductions. Like many companies, they went from being proactive in maintaining equipment to being reactive. Spare parts inventories were pared to the bone. They forced their vendors to become more cost effective to reduce their prices and I'm sure the vendor did the same to companies supplying them with raw materials. Like many companies, they were no longer shielded from the elements by brick and mortar; they now depend on mud and straw to keep a strong wind from blowing them over.

Recently a piece of support equipment failed causing several others units to fail. Every machine had it's left-handed elbow fitting (the true name of the part is a company secret). Naturally, they only stocked one fitting internally because the part failed once a month and could normally be replaced in a week. The vendor who sells the part only makes and keeps a few on hand because he only sells a few every month. The raw materials person mines enough copper to meet his normal sales quota - no more, no less.

The ripple begins to return.

Suddenly, the company is screaming for more fittings. The vendor is screaming for more raw materials. The material person is screaming at his workers to produce more copper.

Several days and many hours later the copper is mined and sent to the vendor. Because the vendor has a production schedule to keep he can only produce parts on overtime. That means two more weeks to produce all the fittings. Throw in shipping time and the company has had eleven machines sit for almost a month. Because the machines have sat for so long they take a few days to come back up to normal production speed.

Ever see a rock float?

The business normally receiving product from the down equipment has canceled their orders because of the company's inability to meet their needs. Oh, well. The company will just lay fifty people off until they can find a new customer.

Hey, what's there to get sore about?