Is the Economy Broken or Is It being Used?
What got me going to write this was reading a short blurb on The Lever about the economy. The transcript was provided and I read part of it. The content is all about supply chain which I was a part of for 40-something years. I find The Lever script (link below) interesting as it parallels my experience. It may be boring to you.
Some background
Nineteen seventy-four was a pretty good year for my wife and I. Finished college after three years with a minor in math and majoring in business. My sights were set on getting a degree in engineering until the bottom dropped out of the discipline. It did change after a few years. I had already changed course due to getting some advice from a VP of patents and trademarks. My wife worked for him and the other attorneys as a paralegal. She was the bread winner then.
Having a couple of years in Calculus never really paid off for me. What did pay off was being intuitive. By that I mean, understanding the manufacturing process within the company and the suppliers, in transit times, and what the weeks of inventory meant and how much time I had. With this knowledge, I could game the system. The college degree allowed me to enter business at a different level.
I was introduced to the American Production and Inventory Control association by my manager’s boss. Didn’t excite me till a couple of years later. It did ground me in planning, the flow of materials, and systems (MRPII) used in the manufacturing process.
Allow me to speed this up a bit. Being close to manufacturing gave me insight. Working in Purchasing and becoming a Certified Purchasing Manager gave me more background. Picking up a Masters added to my level of knowledge. Finally, working as a consultant along with engineers, going from one business to another, and working with one Rensselaer doctorate allowed me to use my knowledge. And I was able to develop a foundation for my beliefs in how to improve the processes of companies.
Some premises:
– It is easy to manipulate the supply chain.
– It is easier to manipulate a supply chain based on manufacturing overseas.
– Labor costs are a smaller part of manufacturing cost then when I started out.
– Due to technical improvements in manufacturing (cell, robotics, etc.) Labor content has decreased even more.
– Many of the issues related to supply could have been resolved. The same holds true for in transit issues.
– Etcetera and the list could be even longer.
It is always thrilling (not) to me when the pundits find something that rings true and has done so for years as I mentioned above in the leadup to this part of my commentary. The following is being offered up. I have added the link so you can read the rest. I cut it short.
Part of a transcript posted on The Lever.
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I’m David Sirota.
Inflation is one of the pundit classes favorite words. For years, we were deluged with theories that it was rising workers’ wages or too much government spending that was forcing up the costs of goods.
But rarely did any of them ever consider that it wasn’t workers or public programs that were the culprit. In fact, the real target of their ire should’ve been the corporations themselves who control pricing.
But don’t take it from me. That’s what the CEOs of major corporations have literally told their shareholders. That inflation has been good, and in fact has given them cover to raise prices on unexpecting consumers.
And it’s not just the CEOs saying it. In a new study by the Federal Reserve Bank of Boston, researchers found that prices grew faster than labor costs.
So, no. It’s not workers wages. It’s corporate profiteering. But the story goes even deeper than that. Corporate profiteering is behind what kicked off the inflation crisis to begin with.
Today on Lever Time, we’re going to go to senior podcast producer Arjun Singh. He’ll first look at just how far corporations went to price gouge consumers recently. Then, he sits down with reporter Peter Goodman to understand how this crisis began: with a broken supply chain that was controlled by 3 mega corporations.
That’s here on Lever
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The Close Explanation
What a surprise, prices grew faster than costs which includes Labor. Why is such occurring? Because they can do it under the guise of a pandemic occurring. Similar happened in 2008-2010 with the bad boy product called semiconductors. A salesperson called me up. He announced their company was increasing prices and to live with it or find somewhere else to go for a new semiconductor.
For us, it would have meant a new qualification process to be approved by the automotive company we were supplying to. The process is long and is not a guarantee of success. Meanwhile the old company would cut us off. So, we sucked it up and ate the cost.
David Sirota is correct. One example . . . The container issue on the west coast was a sham and could have been corrected by Long Beach and Los Angeles ports. Such confusion and delay did play a role in increasing prices. It wasn’t until Biden stepped in and demanded it be corrected. How quick we forget what was done previously during the pandemic and who did it.
Another example . . .The supply chain is not broken and never was broken. It is being used to justify prices increases along with other things such as same pricing for smaller amounts of the product. a half an ounce here an ounce there and the profits go up. Oh, we had an increase in packaging costs for non-standard box or bottle size.
And the sleight of hand continues.
1972 I started my ‘professional’ work in the USAF Standard Base Supply System. We had a Univac 1050-II, most bases had two so that they could do the xxxxx (I can’t recall) transaction limit, run reports and switch to the secondary system and keep doing transactions. We had 32k RAM!!!
We ran reverse logistics for expensive parts that were repaired at USAF and USN (USAF units never got away with throwing parts overboard, altered the accounting and cost control for depot return parts!) depots, as well as supplies for the base services units on top of the main war related missions.
It was quite advanced in theory.
I have to disagree with not using higher math. USAF used an economic order quantity formula to determine the retail stock aka the amount to have on hand to trigger a routine resupply transaction. The object was to find the point on the holding cost and ordering costs curves where total cost was near minimum. That amazing 34k computer did all this!
The policy even in the 1970’s was pretty mathematics oriented.
We also owned the transactions run SW and the changes came out monthly from an USAF development labs whom we cussed roundly all the time.
We went from 80-80 cards and punch card machines to the cloud in 50 odd years!
Paddy:
This is not rocket-science. It is accounting. Key punched cards fed into Data 100s and run through a computer spitting out a monthly, them biweekly, and finally a weekly report from a broken system my idiot boss could not complete.
I loved asking one question of my boss, where he would say no, and then more questions where he would agree, and the bring him back to the original question where he had no foundation to say “no.” And I would smile at him. He was the dinosaur and I was the predator.
All of this before it became automated online entry of activities. MRP going to MRPII and finally ERP. Oliver Wight, George Plossl, Martin (Distibution), Goldratt (The Goal), Schonberger, etc. The Toyota Production System (Monden). I did not invent any of it; but, I implemented them. It was logical stuff.
I consulted for Ingersoll Engineers. For some without MRP, I would teach them how to schedule on Excel. A weekly effort if possible or every two weeks.
The USAF had resources. Many companies did not have systems to plan the most expensive thing in their business . . . inventory. It was fun to watch the turns increase after I taught them. I would walk the manufacturing floor, watch, and learn.
The resistance from the plants was fierce. As long as we did not screw up, we were safe and I was always there to listen and provide solutions and run interference.
paddy,
I watched what they did in 2008. They learned from it and had an excuse to do it again during the pandemic. They played the system.
Thanks for this, both of you. it’s nice to hear from people who know something from time to time.