I had breakfast with a local businessman yesterday.
The conversation veered from red squirrels to business partners to family to the temporary nature of jobs.
He expressed his disgust at quoting jobs and then finding out that his spec-sheet had been used to purchase parts on-line and installed by unqualified people. He was making money for Amazon.
One question that came up a few times was "How far will the can be kicked down the road?"
The problem with "easy money" or easy credit is that it masks pathologies that lurk in every system.
The power in Just-in-Time inventory is not the reduced carrying costs, although that is not a small number. The power in J-I-T and lean manufacturing is that it forces manufacturers and merchandizers to find and kill the problems that force enterprises to carry extra inventory "as insurance".
Easy money is like all that extra inventory. It masks problems. Failing retailers like K-Mart can by competitive retailers like Sears and suck the life's-blood out of them. Amazon can borrow money or issue equities and bone suppliers between time of sale and dispersement of funds.
Businesses with rotten business plans can hide failure for years as long as they generate accelerating revenue metrics.
In the meantime, the corpses of businesses like my friend's litter the ground, pulverized by large company's access to cheap money. Those debt fueled companies are like amphetamine-wired truckers with no peripheral vision barreling down the freeway at 90 miles per hours. By one metric they look fabulous. By a more comprehensive set of metrics we wonder why they still have keys to any vehicle, much less a truck with a GVW of 40,000 pounds.
I understand Trump wants to get reelected and a rising stock market helps. Truth be told, I want to see him get reelected.
Even if Trump fails to get reelected, handing a booming economy over to the next guy/gal and then having it do a face-plant validates Trump's legacy.
I am not sure we will make it that far without a retrenchment of pricing in the equity market.
And I think we are over-due for a brush-fire to clear out the dead wood. A rising tide raises all boats and a receding tide reveals who is swimming naked.
Regarding local business:ReplyDelete
The problem with every established business is the fact that upstarts can dive into their market and beat their prices due to lower overhead costs and operations. The longer a business exists the tendency to grow inures the higher costs and expenses and eventually they become as easy a target as their competition was at their beginning.
In the larger sense, JIT inventory is a reflection of a lack of depth of the cash reserves of a business. When we allow foreign interests to market their wares within our borders without the incumbent overhead a business located within the USA has, we are, in effect, dooming our own businesses by doing so. The only way to effectively compete is to reduce inventory and other temporary cash outlays to the lowest possible amount. This places much more stress upon the supply chain side of a business to meet delivery deadlines and as you increase this type of stress, the human factor enters in and unlike mechanical logistics, you cannot expect the same high level of production. In essence, the JIT problem is people and the pressures of wages on the bottom line.
The driving force of all of this is the customer. The customer naturally seeks the lowest possible cost for any purchase and this applies to individuals as well as business. The days of buying from one supplier because you have always done so are long gone. As margins over cost shrink, so do loyalties. Eventually, the strong survive; for now; and the weak are consumed.
Concur with all. And the same applies to a LOT of cities, towns, etc. who are upside down on pension plans and .gov spending.ReplyDelete