This is the second in EkaLore’s “Show me the money series.” Inflation, conflict, supply chain disruption, and rising interest rates are moving companies to change their business tactics.
Just in time Inventory runs into a few problems –
Target, Amazon, Walmart, and other retailers have told investors and the public about their inventories and purchasing commitments being too big. Retailers are stuck with increasing inventories from “Just In Time” techniques. These once popular techniques have been not fared well due to changes fostered by the Covid-19 shutdowns and over-commitments for big-ticket consumer goods like TV’s, home furnishings, and consumer non-essentials.
Warehouses, 3PL facilities, and import paths are clogged with slow moving goods. New ‘Fintech’ businesses (such as Affirm) are seeking to stretch the customer spend on big ticket purchases. These services usually require some contribution from vendors and are yet to be tested in a high-inflation period. Together these financing costs and gap in planned and actual sales are driving financial performance down in enterprises.
Enterprises (industrial or retail) are facing increased costs of money – due to inflation, government policies, and slower cash collections. Customers slowing bill-paying by even a few days increases cash-flow costs when interest rates increased from negligible rates towards 10%. For large retailers the changes are measured in billions of dollars of inventory not moving while tying up cash and lowering profits. Industrial enterprises responded buying inventory buffer stocks to ensure smoothing production and making predicted deliveries. Distributors inventory costs increased as they looked to increase on-hand stocks to handle surges and sags in end-sales demands. “Floor planning” costs surged from low single digits to income-threatening levels. (See related Alien Sighting about Tesla) Enterprises will see financial pressures as inventory costs tie up capital and increase financial costs (interest, taxes/fees, logistics costs).
Ekalore will be looking at how inventory practices are being evaluated due to the current shocks to the economy.
You can read this post and others at www.ekalore.com/ars
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