Markets do work.Schafer, STrib:
Scott MacDonald of Edina-based Mac & Mac, Inc. represents manufacturers to retailers, including clients in China. Last week, he walked me through a lot of the problems faced by Chinese managers with 30% or more sales growth.
Materials costs are up a lot, for one thing. A common plastic used in many consumer products costs about 60% more than it did prior to the boom. One of his manufacturers has 115 separate suppliers, and 92 of them have recently raised their prices.
In China, manufacturers are facing electric power outages. Authorities are using power restrictions, MacDonald's clients told him, to reduce the boom's distorting effects on the broader Chinese economy.
It might then be tempting to blame our supply-chain problems on globalization. But supply chains are hardly a new thing.
A manufacturer of any size 40 or 50 years ago likely outsourced work, buying materials, parts and subassemblies from a network of suppliers.
The principles of running an effective supply chain haven't changed that much, but the distances sure have. It's a two-and-a-half to three-week sail from China to the San Pedro Bay container ports in Los Angeles and Long Beach. That big ocean has become a big bottleneck.
As a result, shipping costs have climbed almost out of sight.
Before the pandemic, a Chinese manufacturer would have paid about $5,600 to ship a full, 40-foot-long "high cube" container from China to a customer's loading dock here.
Now, MacDonald said, that will cost around $32,000.
Shipping companies are giving space to those willing to pay more. One of MacDonald's clients had its containers pulled off the ship at a port-of-call partway to America because another company was willing to pay more for the space.
The cost of shipping some products, an artificial Christmas tree in one case, now exceeds the price a company charges customers. That's why many retailers are raising consumer prices. A sofa made by one of Mac & Mac's clients has gone from $699 to $799 to $1,199 at Menards.
Then, there's a cascading series of hassles that have worsened delays, like container ships anchored offshore for weeks with no place to dock. Or Union Pacific's decision to no longer carry shipping containers to Chicago because the railroad had nowhere to stash the empty ones.
And, of course, there was a truck driver shortage even before the pandemic.
American retailers might sound confident that they'll find a way to manage through this because they really think they can, but it's unlikely they've seen anything quite like this before.
This situation reminds me of a story told in a now-classic business book called "The Goal," first published nearly 40 years ago.
"The Goal," written as a fictional page-turner, has to be one of the oddest management books ever published.
The main character of this novel is a plant manager with problems, large and small. He has a brainy friend to advise him. Yet, with his team, he really figures it out for himself. One moment of clarity for the plant manager came while leading a Boy Scout hike.
One scout, Herbie, was slow. Other kids moved ahead and then had to wait. The process — a chain of kids, spread along a trail — had a constraint, and it was Herbie. Eventually, they figured out how to lighten Herbie's pack and they all settled in to move efficiently at his pace.
That's the story executives might want to tell about stressed-out supply chains. There's just a bunch of Herbies popping up, and we know how to lighten the load or work around them.
But what would've happened to this little troop on the trail if it'd been required to do the whole hike at a jog? It wouldn't have been just one kid who struggled to keep up.
That's what we have here now, one supply chain after another being forced to run instead of walk.
Asked what the long-term fix is, MacDonald hesitated a second before answering.
"Retail prices have to go through the roof," he said. "And then the consumer stops spending."
Price sensitivity is as real as anything else.No sarcasm at all. I'm always amazed at the shrieking at consumer prices, as if they MUST be static.
Bare shelves Biden!
Greg Abbott's Texas...sad. No wonder carpet-bagger Allen West is leading him in the primary.
I don’t know what you’re talking about. Whatever it was, it must not have been done much b/c I haven’t seen it. And you think I watch FNC 16 hours a day.Who said that? Haven't seen many empty shelves (Thanks Joe!).
Meanwhile you don't deny what Fox News did. Pretty pathetic of them, eh?
That’s it?Because they would totally admit it on air...
They don't have to, but they did.That’s it?
It’s a picture of empty shelves. You don’t have to use pics from Japan to show empty shelves of some sections.
It’s not like hiring child actors to pretend to be kids interested in space travel to conduct a media event for the VP.