How Can Productivity Soar When “That” Is Out Of Stock?

Authored by Bruce Wilds via Advancing Time blog,

Recently a person that gets about shared with me a story about how coffee shop employees spent much of their day telling customers, we can’t make that. The problem, of course, was they were unable to get the ingredients. Not only did it reduce sales but it left customers a bit peeved. While understanding it is not the fault of the barista, somewhere in the back of their mind they probably blamed someone in management for not making sure enough inventory was on site.

We should wonder how productivity can soar when so many items are out of stock and companies don’t have “that.” This is a problem caused by supply chain disruptions. The ramifications loom large as shortages continue adding to the cost of doing business. Much of this is due to shipping issues. Adding to the problem is due to the cost of carrying inventory many companies over the years have moved towards a just-in-time system. This means not stocking huge quantities of goods but bringing them in just before they are needed has left shelves empty.

Outsourcing the manufacturing of products to distant lands has come back to bite us. Once considered the way to lower cost and increase profits now means we have become far more dependent on logistics. Hopefully, the latest supply chain failures and increased animation will be enough to cause companies to rethink returning much of their production closer to home. For now, all this is driving prices higher and adding to inflation.

Yes, supply chain shortages are real and yes, they are destroying productivity. A couple of months ago Shelly Fagin wrote a piece titled; List Of Supply Chain Shortages. In the article, she delves into the bottlenecks in the chain explaining why this is occurring. The list of items having a difficult time getting to consumers is both broad and long. It includes everything from different kinds of foodstuff, to water pumps, and semiconductor chips. This has created a domino effect slowing the production and availability of even more products.

It Is Hard To Sell From Empty Shelves

Returning to the story about the coffee shop, the problem is that employees are being paid not to produce but to disappoint. This is not a successful formula for any business owner. Sadly, it is occurring every day across America and hurts small businesses the most because they often do not have the resources to ride out the storm. Imagine being the business owner that has seasonal items arriving at their door too late to be sold. How do they sell that new shipment of Christmas tree lights that arrive in February?

Another issue acting as a double-edged sword on productivity is the “Amazon business model.” The inefficiency of shipping products directly to consumers is a subject raised here on AdvancingTime in a recent post. This inefficiency was hammered home on December 26th and 27th on NBC news. While the news did not blame Amazon directly it attacked the wasteful process of selling online. NBC looked at how new products purchased online were often returned and the cost to a business for taking these items back. It reported it cost $33 to take back an item sold for $50 and how this is crushing profit margins. NBC went on to detail how many of these items end up in landfills were never used.

As a side note, it should be mentioned that many of these items ending up in landfills unused were manufactured in China. How ironic, the fact we buy so much from China rather than making more goods at home is one of the reasons for the current supply chain debacle. There is a slang expression we sometimes hear people say, “you can’t make this shit up.” This idiom is used to describe a situation, event, or action that is or seems especially bizarre, surreal, or hard to believe. To put this in context, Americans send their wealth overseas to buy the goods our system is designed to throw away. 

When all is said and done the combination of sorry we don’t have that and paying employees to take back items previously sold online so you can send them to a landfill decimates profits. In the latter case, it is also an environmental disaster. The only place the second matter can be cheered is that in some sick way it adds to the GDP. Yes, one of the dirty little secrets of our political leaders is, waste adds to the GDP.