Another in our Ripple series following the effects of inflation on industries starting with Retail, and moving to suppliers, and now other business practices across industries.
Low interest rates have allowed manufacturers and others to build inventory of high-value items (such as large screen TVs). Until the return of inflation, Financing/holding costs for goods in transit or stored-in-transit, were small compared to value. All market participants could act without much concern for “floor planning”, “work in process”, or “finished goods carrying” costs. Consumer uptake in a short time could reasonably be expected at current rates of consumption. All participants of the value chain until the customer see costs increase as global interest rates rise. The advantage of low interest rates, that eases the convenience of meeting “pull system” inventory stocking, is now a liability at higher rates.
Target, as an example, is adding distribution warehouses and buffer stock warehouses near inbound shipping terminals. As consumer demand varies the buffer stock will handle variability in demand for some items. Additional capacity is needed to begin accumulating inventory for 2022Q4 that is customarily produced and shipped during summer months. Big box retailers will all face the same balancing work out as inventory sold changes for consumer demand.
Read our previous (and next posts) in the Ripple series at www.ekalore.com/the-ripple-effect
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