Like so many industries in the world that have been effected by the pandemic and subsequent fallout, the interior design and home renovating/construction industry has been besieged by interruptions, shortages, and very long lead times. I want to take this opportunity to explain a bit about what is happening and why you--whether you are a current client or not--might have to wait what seems like an unreasonable amount of time for a sofa, table, or chair.
These days, I am routinely giving clients frustrating news about very long lead times, which is sometimes met with either incredulity or begrudging resignation. Unfortunately, there is nothing that can be done. These are not issues within a certain furniture manufacturer, or with a certain store or vendor, or with a certain region. These are global issues which highlight how interconnected we all are.
Most of this can be traced back to COVID...and not just a shutdown of suppliers and manufacturers but the subsequent reduction in workforce. Most companies brought back only 20%-25% of their workforce so workers could be kept at safe distances from each other. I know of one company on the east coast who sadly had three employees die from COVID. These were employees who have very specific skills in furniture assembly and those positions cannot easily be filled...people often apprentice in woodworking and furniture manufacturing to be a member of a company who produces benchmade pieces.
These days, I am routinely giving clients frustrating news about very long lead times, which is sometimes met with either incredulity or begrudging resignation. Unfortunately, there is nothing that can be done. These are not issues within a certain furniture manufacturer, or with a certain store or vendor, or with a certain region. These are global issues which highlight how interconnected we all are.
Most of this can be traced back to COVID...and not just a shutdown of suppliers and manufacturers but the subsequent reduction in workforce. Most companies brought back only 20%-25% of their workforce so workers could be kept at safe distances from each other. I know of one company on the east coast who sadly had three employees die from COVID. These were employees who have very specific skills in furniture assembly and those positions cannot easily be filled...people often apprentice in woodworking and furniture manufacturing to be a member of a company who produces benchmade pieces.
And of course the production of a single piece of furniture is not just effected by the company that makes it but by the unavailability of all the things that go into it: the wood from overseas, the metal from overseas to make springs or ball bearings, the chemicals (yes, from overseas) that make the stain or paint finish, the fabric from mills (either domestic or located in Turkey or India--and we know what happened in India with their devastating COVID outbreak) that are closed or behind on production, and the shortage of foam. In fact, the largest factory that makes petrochemicals for foam in upholstered goods is in Texas and because of the freak freezing storms last winter due to the increasing effects of climate catastrophe, they suffered a major blow. The pipes that carry the chemicals froze, completely ruining equipment and causing them to shut down for a long time to repair, replace equipment, and rebuild their factory.
And then there is the shortage of shipping containers around the world. There are on average a dozen or more shipping containers on any given day sitting off the West Coast waiting to be able to dock and unload goods and materials. This is directly related to a shortage of dock workers, a shortage of truck drivers to haul the goods away to be delivered, and a shortage of American-made goods that need to fill the empty container for it to leave the port. But because we as a country don't produce the amount of goods we once did, containers sit empty. Shippers cannot justify the cost of taking away an empty container, doing nothing. So a ship can't dock until there are enough goods to fill it back up.
I have a client who waited months for a teak dining table to complete an outdoor dining set, only to be frustrated enough to cancel her order. The danger with doing that is that, as stated, this is a global problem. Teak comes from Asia, they have been hard hit by COVID, and suffer the same problems as everyone else, in addition to all of the above described issues. Cancelling an order only means that you have lost your place and now must now move to the back of the line to wait even longer.
I want to share with you a recent CNN article that covers this subject well.
Here's why you're waiting months for that couch you ordered
By Parija Kavilanz, CNN Business
Updated 2:57 PM ET, Fri July 30, 2021
New York (CNN) - Get ready to wait months, maybe even into 2022, for that new sofa to arrive at your doorstep.
Delays on furniture deliveries have already been frustrating during the pandemic, and they're about to get much worse.
The newest problem for furniture sellers is the increase in spread of Covid-19 and subsequent factory closures in a key region: Vietnam. Vietnam competes with China as a top exporter of furniture to the United States, according to the US Commerce Department. It exports everything from wooden bedroom and dining room sets to upholstered furniture, such as cushioned dining chairs, couches and ottomans.
The country is also currently in the throes of a coronavirus outbreak caused by a suspected new variant of the virus, which Vietnam's health minister said has led to new infections in its industrial zones.
The number of daily new infections of coronavirus have risen rapidly in Vietnam since late June, with 9,765 cases reported on July 30, up sharply from 371 confirmed new cases on June 30, according to the latest data from the World Health Organization.
The current surge in new infections has put pressure on the government there to increase its vaccine supply and speed up inoculations. So far only one half of 1% of Vietnam's population has been vaccinated.
In an effort to contain the outbreak, some factories have temporarily closed.
The situation in Vietnam will further impact US furniture sellers who are already grappling with a global supply chain slowdown tied to shipping container and labor shortages, among other factors. That's happening at the same time that demand for furniture is hotter than ever.
What this means for shoppers is that the current three to six months delay on furniture orders could drag out even longer. And for any new orders coming in at this time, you might be ringing in 2022 before you get your living room set.
Furniture sellers say rising new coronavirus infections in Vietnam, a major manufacturing hub for furniture, will add to already protracted customer delivery delays.
With factories in Vietnam shutting down due to the outbreak, the front-end of the United State's furniture supply chain is badly affected, said Mark Schumacher, CEO of Home Furnishings Association, an industry group representing more than 1,500 retailers.
Schumacher said many of his members have already been notified by their suppliers in Vietnam that factories have shut down for at least two weeks. "These closures will cause production to dry up and no new supply coming in. In many cases, customers who are ordering furniture now are being told it can take nine months to a year for delivery," he said.
Even furniture that's made in the United States is impacted, said Schumacher. "Domestically-made furniture also uses components that are imported. Those pieces are caught in these delays," he said. "We're caught in this cycle of disruption. Every time we take two steps forward, it's two steps back."
Patience is running out
While shoppers may initially have been patient, "they are starting to push back," said David Koehler, CEO of Johnny Janosik, a Delaware-based large regional furniture chain.
"We're being upfront with them if we don't have a definite delivery date and tell them if it could be even longer than expected," said Koehler. He said the longest delays could be on upholstered furniture. New orders in that category could be 24 weeks to a year out, he said.
Keith Koenig, founder and owner of Fort Lauderdale, Florida-based furniture chain City Furniture is watching the situation in Vietnam closely.
His company does about $700 million in sales annually. "Vietnam is our biggest supplier," he said.
Koenig said furniture factories that supply product for City Furniture notified him that they started to shut down last week in Vietnam. "They will be closed until at least August 4th. But this shutdown can also stretch another two to three weeks after that," he said.
Customers are unhappy with the wait times. "We get it," he said. "We tell them that before you decide to cancel your order, please go out and see if you can find what you want in the time frame that you want. If you can't, and then you come back to us, you'll unfortunately be at the bottom of the queue."
Brian Morgan, co-owner of Austin's Couch Potatoes, operates four stores in Texas, three in Kansas and a factory in Austin.
"We sell thousands of pieces of furniture yearly," he said, adding that orders are typically delivered in a two to 10-week time frame. Now 75% of orders at one of his locations are taking six to eight months. "It's kind of nutty right now. Every single day we're hearing more bad news," he said.
IKEA, one of the largest furniture sellers in the world, said in an email to CNN Business that the company is "aware of the very concerning situation in Vietnam."
"Throughout the pandemic, it has created challenges and constraints in our operations. We are striving to make fast and wise decisions, providing timely support to our business partners around the world to mitigate the impact on their businesses and people, while focusing on making IKEA products available for our customers," the company said.
How the World Ran Out of Everything
Global shortages of many goods reflect the disruption of the pandemic combined with decades of companies limiting their inventories.
By Peter S. Goodman and Niraj Chokshi
June 1, 2021
In the story of how the modern world was constructed, Toyota stands out as the mastermind of a monumental advance in industrial efficiency. The Japanese automaker pioneered so-called Just In Time manufacturing, in which parts are delivered to factories right as they are required, minimizing the need to stockpile them.
Over the last half-century, this approach has captivated global business in industries far beyond autos. From fashion to food processing to pharmaceuticals, companies have embraced Just In Time to stay nimble, allowing them to adapt to changing market demands, while cutting costs.
But the tumultuous events of the past year have challenged the merits of paring inventories, while reinvigorating concerns that some industries have gone too far, leaving them vulnerable to disruption. As the pandemic has hampered factory operations and sown chaos in global shipping, many economies around the world have been bedeviled by shortages of a vast range of goods — from electronics to lumber to clothing.
In a time of extraordinary upheaval in the global economy, Just In Time is running late.
“It’s sort of like supply chain run amok,” said Willy C. Shih, an international trade expert at Harvard Business School. “In a race to get to the lowest cost, I have concentrated my risk. We are at the logical conclusion of all that.”
The most prominent manifestation of too much reliance on Just In Time is found in the very industry that invented it: Automakers have been crippled by a shortage of computer chips — vital car components produced mostly in Asia. Without enough chips on hand, auto factories from India to the United States to Brazil have been forced to halt assembly lines.
But the breadth and persistence of the shortages reveal the extent to which the Just In Time idea has come to dominate commercial life. This helps explain why Nike and other apparel brands struggle to stock retail outlets with their wares. It’s one of the reasons construction companies are having trouble purchasing paints and sealants. It was a principal contributor to the tragic shortages of personal protective equipment early in the pandemic, which left frontline medical workers without adequate gear.
Just In Time has amounted to no less than a revolution in the business world. By keeping inventories thin, major retailers have been able to use more of their space to display a wider array of goods. Just In Time has enabled manufacturers to customize their wares. And lean production has significantly cut costs while allowing companies to pivot quickly to new products.
These virtues have added value to companies, spurred innovation and promoted trade, ensuring that Just In Time will retain its force long after the current crisis abates. The approach has also enriched shareholders by generating savings that companies have distributed in the form of dividends and share buybacks.
Still, the shortages raise questions about whether some companies have been too aggressive in harvesting savings by slashing inventory, leaving them unprepared for whatever trouble inevitably emerges.
“It’s the investments that they don’t make,” said William Lazonick, an economist at the University of Massachusetts.
Intel, the American chip-maker, has outlined plans to spend $20 billion to erect new plants in Arizona. But that is less than the $26 billion that Intel spent on share buybacks in 2018 and 2019 — money the company could have used to expand capacity, Mr. Lazonick said.
Some experts assume that the crisis will change the way companies operate, prompting some to stockpile more inventory and forge relationships with extra suppliers as a hedge against problems. But others are dubious, assuming that — same as after past crises — the pursuit of cost savings will again trump other considerations.
Chaos on the Seas
The shortages in the world economy stem from factors beyond lean inventories. The spread of Covid-19 has sidelined port workers and truck drivers, impeding the unloading and distribution of goods made at factories in Asia and arriving by ship to North America and Europe.
The pandemic has slowed sawmill operations, causing a shortage of lumber that has stymied home building in the United States.
Winter storms that shut down petrochemical plants in the Gulf of Mexico have left key products in short supply. Andrew Romano, who runs sales at a chemical company outside Philadelphia, has grown accustomed to telling customers they must wait on their orders.
“You have a confluence of forces,” he said. “It just ripples through the supply.”
Steep increases in demand made pet food scarce and Grape-Nuts cereal all but disappear from American store shelves for a time.
Some companies were especially exposed to such forces given that they were already running lean as the crisis began.
And many businesses have combined a dedication to Just In Time with a reliance on suppliers in low-wage countries like China and India, making any disruption to global shipping an immediate problem. That has amplified the damage when something goes awry — as when an enormous vessel lodged in the Suez Canal this year, closing the primary channel linking Europe and Asia.
“People adopted that kind of lean mentality, and then they applied it to supply chains with the assumption that they would have low-cost and reliable shipping,” said Mr. Shih, the Harvard Business School trade expert. “Then, you have some shocks to the system.”
An Idea That Went ‘Way Too Far’
Just In Time was itself an adaptation to turmoil, as Japan mobilized to recover from the devastation of World War II.
Densely populated and lacking in natural resources, Japan sought to conserve land and limit waste. Toyota eschewed warehousing, while choreographing production with suppliers to ensure that parts arrived when needed.
By the 1980s, companies around the globe were emulating Toyota’s production system. Management experts promoted Just In Time as a way to boost profits.
“Companies that run successful lean programs not only save money in warehouse operations but enjoy more flexibility,” declared a 2010 McKinsey presentation for the pharmaceutical industry. It promised savings of up to 50 percent on warehousing if clients embraced its “lean and mean” approach to supply chains.
Such claims have panned out. Still, one of the authors of that presentation, Knut Alicke, a McKinsey partner based in Germany, now says the corporate world exceeded prudence.
“We went way too far,” Mr. Alicke said in an interview. “The way that inventory is evaluated will change after the crisis.”
Many companies acted as if manufacturing and shipping were devoid of mishaps, Mr. Alicke added, while failing to account for trouble in their business plans.
“There’s no kind of disruption risk term in there,” he said.
Experts say that omission represents a logical response from management to the incentives at play. Investors reward companies that produce growth in their return on assets. Limiting goods in warehouses improves that ratio.
“To the extent you can keep reducing inventory, your books look good,” said ManMohan S. Sodhi, a supply chain expert at the City, University of London Business School.
From 1981 to 2000, American companies reduced their inventories by an average of 2 percent a year, according to one study. These savings helped finance another shareholder-enriching trend — the growth of share buybacks.
In the decade leading up to the pandemic, American companies spent more than $6 trillion to buy their own shares, roughly tripling their purchases, according to a study by the Bank for International Settlements. Companies in Japan, Britain, France, Canada and China increased their buybacks fourfold, though their purchases were a fraction of their American counterparts.
Repurchasing stock reduces the number of shares in circulation, lifting their value. But the benefits for investors and executives, whose pay packages include hefty allocations of stock, have come at the expense of whatever the company might have otherwise done with its money — investing to expand capacity, or stockpiling parts.
These costs became conspicuous during the first wave of the pandemic, when major economies including the United States discovered that they lacked capacity to quickly make ventilators.
“When you need a ventilator, you need a ventilator,” Mr. Sodhi said. “You can’t say, ‘Well, my stock price is high.’”
When the pandemic began, car manufacturers slashed orders for chips on the expectation that demand for cars would plunge. By the time they realized that demand was reviving, it was too late: Ramping up production of computer chips requires months.
“The impact to production will get worse before it gets better,” said Jim Farley, the chief executive of Ford Motor, which has long embraced lean manufacturing, speaking to stock analysts on April 28. The company said the shortages would probably derail half of its production through June.
The automaker least affected by the shortage is Toyota. From the inception of Just In Time, Toyota relied on suppliers clustered close to its base in Japan, making the company less susceptible to events far away.
‘It All Cascades’
In Conshohocken, Pa., Mr. Romano is literally waiting for his ship to come in.
He is vice president of sales at Van Horn, Metz & Company, which buys chemicals from suppliers around the world and sells them to factories that make paint, ink and other industrial products.
In normal times, the company is behind in filling perhaps 1 percent of its customers’ orders. On a recent morning, it could not complete a tenth of its orders because it was waiting for supplies to arrive.
The company could not secure enough of a specialized resin that it sells to manufacturers that make construction materials. The American supplier of the resin was itself lacking one element that it purchases from a petrochemical plant in China.
One of Mr. Romano’s regular customers, a paint manufacturer, was holding off on ordering chemicals because it could not locate enough of the metal cans it uses to ship its finished product.
“It all cascades,” Mr. Romano said. “It’s just a mess.”
No pandemic was required to reveal the risks of overreliance on Just In Time combined with global supply chains. Experts have warned about the consequences for decades.
In 1999, an earthquake shook Taiwan, shutting down computer chip manufacturing. The earthquake and tsunami that shattered Japan in 2011 shut down factories and impeded shipping, generating shortages of auto parts and computer chips. Floods in Thailand the same year decimated production of computer hard drives.
Each disaster prompted talk that companies needed to bolster their inventories and diversify their suppliers.
Each time, multinational companies carried on.
The same consultants who promoted the virtues of lean inventories now evangelize about supply chain resilience — the buzzword of the moment.
Simply expanding warehouses may not provide the fix, said Richard Lebovitz, president of LeanDNA, a supply chain consultant based in Austin, Texas. Product lines are increasingly customized.
“The ability to predict what inventory you should keep is harder and harder,” he said.
Ultimately, business is likely to further its embrace of lean for the simple reason that it has yielded profits.
“The real question is, ‘Are we going to stop chasing low cost as the sole criteria for business judgment?’” said Mr. Shih, from Harvard Business School. “I’m skeptical of that. Consumers won’t pay for resilience when they are not in crisis.”
I have seen firsthand over the last many years how nearly all furniture manufacturers dropped a large swathe of materials and inventory they always kept on hand in favor of the Just In Time model--it is plain to see how this model exacerbated an already perilous situation without any planning for an emergency. I personally think these issues and long lead times will be with us into 2022 and maybe into a bit of 2023.
But to my current and upcoming clients, please let me reassure you that despite these long lead times, furniture is arriving. I am seeing pieces come around the estimated time, although the ship date for a few pieces continues to be pushed out, presumably due to the continued absence of materials to make the pieces. If you work with me to furnish your home, we simply must enter into the process knowing that this is not business as usual, and that there are issues no one can control, but that your pieces will get here. Eventually. I beg you for your patience while we wait for your orders to be filled.
I have a client who waited months for a teak dining table to complete an outdoor dining set, only to be frustrated enough to cancel her order. The danger with doing that is that, as stated, this is a global problem. Teak comes from Asia, they have been hard hit by COVID, and suffer the same problems as everyone else, in addition to all of the above described issues. Cancelling an order only means that you have lost your place and now must now move to the back of the line to wait even longer.
I want to share with you a recent CNN article that covers this subject well.
Here's why you're waiting months for that couch you ordered
By Parija Kavilanz, CNN Business
Updated 2:57 PM ET, Fri July 30, 2021
New York (CNN) - Get ready to wait months, maybe even into 2022, for that new sofa to arrive at your doorstep.
Delays on furniture deliveries have already been frustrating during the pandemic, and they're about to get much worse.
The newest problem for furniture sellers is the increase in spread of Covid-19 and subsequent factory closures in a key region: Vietnam. Vietnam competes with China as a top exporter of furniture to the United States, according to the US Commerce Department. It exports everything from wooden bedroom and dining room sets to upholstered furniture, such as cushioned dining chairs, couches and ottomans.
The country is also currently in the throes of a coronavirus outbreak caused by a suspected new variant of the virus, which Vietnam's health minister said has led to new infections in its industrial zones.
The number of daily new infections of coronavirus have risen rapidly in Vietnam since late June, with 9,765 cases reported on July 30, up sharply from 371 confirmed new cases on June 30, according to the latest data from the World Health Organization.
The current surge in new infections has put pressure on the government there to increase its vaccine supply and speed up inoculations. So far only one half of 1% of Vietnam's population has been vaccinated.
In an effort to contain the outbreak, some factories have temporarily closed.
The situation in Vietnam will further impact US furniture sellers who are already grappling with a global supply chain slowdown tied to shipping container and labor shortages, among other factors. That's happening at the same time that demand for furniture is hotter than ever.
What this means for shoppers is that the current three to six months delay on furniture orders could drag out even longer. And for any new orders coming in at this time, you might be ringing in 2022 before you get your living room set.
Furniture sellers say rising new coronavirus infections in Vietnam, a major manufacturing hub for furniture, will add to already protracted customer delivery delays.
With factories in Vietnam shutting down due to the outbreak, the front-end of the United State's furniture supply chain is badly affected, said Mark Schumacher, CEO of Home Furnishings Association, an industry group representing more than 1,500 retailers.
Schumacher said many of his members have already been notified by their suppliers in Vietnam that factories have shut down for at least two weeks. "These closures will cause production to dry up and no new supply coming in. In many cases, customers who are ordering furniture now are being told it can take nine months to a year for delivery," he said.
Even furniture that's made in the United States is impacted, said Schumacher. "Domestically-made furniture also uses components that are imported. Those pieces are caught in these delays," he said. "We're caught in this cycle of disruption. Every time we take two steps forward, it's two steps back."
Patience is running out
While shoppers may initially have been patient, "they are starting to push back," said David Koehler, CEO of Johnny Janosik, a Delaware-based large regional furniture chain.
"We're being upfront with them if we don't have a definite delivery date and tell them if it could be even longer than expected," said Koehler. He said the longest delays could be on upholstered furniture. New orders in that category could be 24 weeks to a year out, he said.
Keith Koenig, founder and owner of Fort Lauderdale, Florida-based furniture chain City Furniture is watching the situation in Vietnam closely.
His company does about $700 million in sales annually. "Vietnam is our biggest supplier," he said.
Koenig said furniture factories that supply product for City Furniture notified him that they started to shut down last week in Vietnam. "They will be closed until at least August 4th. But this shutdown can also stretch another two to three weeks after that," he said.
Customers are unhappy with the wait times. "We get it," he said. "We tell them that before you decide to cancel your order, please go out and see if you can find what you want in the time frame that you want. If you can't, and then you come back to us, you'll unfortunately be at the bottom of the queue."
Brian Morgan, co-owner of Austin's Couch Potatoes, operates four stores in Texas, three in Kansas and a factory in Austin.
"We sell thousands of pieces of furniture yearly," he said, adding that orders are typically delivered in a two to 10-week time frame. Now 75% of orders at one of his locations are taking six to eight months. "It's kind of nutty right now. Every single day we're hearing more bad news," he said.
IKEA, one of the largest furniture sellers in the world, said in an email to CNN Business that the company is "aware of the very concerning situation in Vietnam."
"Throughout the pandemic, it has created challenges and constraints in our operations. We are striving to make fast and wise decisions, providing timely support to our business partners around the world to mitigate the impact on their businesses and people, while focusing on making IKEA products available for our customers," the company said.
And here is a great article from The New York Times that touches on the shipping and freight issues as well as making a case for the idea that our current supply chain woes have been exacerbated by a greed for profit.
How the World Ran Out of Everything
Global shortages of many goods reflect the disruption of the pandemic combined with decades of companies limiting their inventories.
By Peter S. Goodman and Niraj Chokshi
June 1, 2021
In the story of how the modern world was constructed, Toyota stands out as the mastermind of a monumental advance in industrial efficiency. The Japanese automaker pioneered so-called Just In Time manufacturing, in which parts are delivered to factories right as they are required, minimizing the need to stockpile them.
Over the last half-century, this approach has captivated global business in industries far beyond autos. From fashion to food processing to pharmaceuticals, companies have embraced Just In Time to stay nimble, allowing them to adapt to changing market demands, while cutting costs.
But the tumultuous events of the past year have challenged the merits of paring inventories, while reinvigorating concerns that some industries have gone too far, leaving them vulnerable to disruption. As the pandemic has hampered factory operations and sown chaos in global shipping, many economies around the world have been bedeviled by shortages of a vast range of goods — from electronics to lumber to clothing.
In a time of extraordinary upheaval in the global economy, Just In Time is running late.
“It’s sort of like supply chain run amok,” said Willy C. Shih, an international trade expert at Harvard Business School. “In a race to get to the lowest cost, I have concentrated my risk. We are at the logical conclusion of all that.”
The most prominent manifestation of too much reliance on Just In Time is found in the very industry that invented it: Automakers have been crippled by a shortage of computer chips — vital car components produced mostly in Asia. Without enough chips on hand, auto factories from India to the United States to Brazil have been forced to halt assembly lines.
But the breadth and persistence of the shortages reveal the extent to which the Just In Time idea has come to dominate commercial life. This helps explain why Nike and other apparel brands struggle to stock retail outlets with their wares. It’s one of the reasons construction companies are having trouble purchasing paints and sealants. It was a principal contributor to the tragic shortages of personal protective equipment early in the pandemic, which left frontline medical workers without adequate gear.
Just In Time has amounted to no less than a revolution in the business world. By keeping inventories thin, major retailers have been able to use more of their space to display a wider array of goods. Just In Time has enabled manufacturers to customize their wares. And lean production has significantly cut costs while allowing companies to pivot quickly to new products.
These virtues have added value to companies, spurred innovation and promoted trade, ensuring that Just In Time will retain its force long after the current crisis abates. The approach has also enriched shareholders by generating savings that companies have distributed in the form of dividends and share buybacks.
Still, the shortages raise questions about whether some companies have been too aggressive in harvesting savings by slashing inventory, leaving them unprepared for whatever trouble inevitably emerges.
“It’s the investments that they don’t make,” said William Lazonick, an economist at the University of Massachusetts.
Intel, the American chip-maker, has outlined plans to spend $20 billion to erect new plants in Arizona. But that is less than the $26 billion that Intel spent on share buybacks in 2018 and 2019 — money the company could have used to expand capacity, Mr. Lazonick said.
Some experts assume that the crisis will change the way companies operate, prompting some to stockpile more inventory and forge relationships with extra suppliers as a hedge against problems. But others are dubious, assuming that — same as after past crises — the pursuit of cost savings will again trump other considerations.
Chaos on the Seas
The shortages in the world economy stem from factors beyond lean inventories. The spread of Covid-19 has sidelined port workers and truck drivers, impeding the unloading and distribution of goods made at factories in Asia and arriving by ship to North America and Europe.
The pandemic has slowed sawmill operations, causing a shortage of lumber that has stymied home building in the United States.
Winter storms that shut down petrochemical plants in the Gulf of Mexico have left key products in short supply. Andrew Romano, who runs sales at a chemical company outside Philadelphia, has grown accustomed to telling customers they must wait on their orders.
“You have a confluence of forces,” he said. “It just ripples through the supply.”
Steep increases in demand made pet food scarce and Grape-Nuts cereal all but disappear from American store shelves for a time.
Some companies were especially exposed to such forces given that they were already running lean as the crisis began.
And many businesses have combined a dedication to Just In Time with a reliance on suppliers in low-wage countries like China and India, making any disruption to global shipping an immediate problem. That has amplified the damage when something goes awry — as when an enormous vessel lodged in the Suez Canal this year, closing the primary channel linking Europe and Asia.
“People adopted that kind of lean mentality, and then they applied it to supply chains with the assumption that they would have low-cost and reliable shipping,” said Mr. Shih, the Harvard Business School trade expert. “Then, you have some shocks to the system.”
An Idea That Went ‘Way Too Far’
Just In Time was itself an adaptation to turmoil, as Japan mobilized to recover from the devastation of World War II.
Densely populated and lacking in natural resources, Japan sought to conserve land and limit waste. Toyota eschewed warehousing, while choreographing production with suppliers to ensure that parts arrived when needed.
By the 1980s, companies around the globe were emulating Toyota’s production system. Management experts promoted Just In Time as a way to boost profits.
“Companies that run successful lean programs not only save money in warehouse operations but enjoy more flexibility,” declared a 2010 McKinsey presentation for the pharmaceutical industry. It promised savings of up to 50 percent on warehousing if clients embraced its “lean and mean” approach to supply chains.
Such claims have panned out. Still, one of the authors of that presentation, Knut Alicke, a McKinsey partner based in Germany, now says the corporate world exceeded prudence.
“We went way too far,” Mr. Alicke said in an interview. “The way that inventory is evaluated will change after the crisis.”
Many companies acted as if manufacturing and shipping were devoid of mishaps, Mr. Alicke added, while failing to account for trouble in their business plans.
“There’s no kind of disruption risk term in there,” he said.
Experts say that omission represents a logical response from management to the incentives at play. Investors reward companies that produce growth in their return on assets. Limiting goods in warehouses improves that ratio.
“To the extent you can keep reducing inventory, your books look good,” said ManMohan S. Sodhi, a supply chain expert at the City, University of London Business School.
From 1981 to 2000, American companies reduced their inventories by an average of 2 percent a year, according to one study. These savings helped finance another shareholder-enriching trend — the growth of share buybacks.
In the decade leading up to the pandemic, American companies spent more than $6 trillion to buy their own shares, roughly tripling their purchases, according to a study by the Bank for International Settlements. Companies in Japan, Britain, France, Canada and China increased their buybacks fourfold, though their purchases were a fraction of their American counterparts.
Repurchasing stock reduces the number of shares in circulation, lifting their value. But the benefits for investors and executives, whose pay packages include hefty allocations of stock, have come at the expense of whatever the company might have otherwise done with its money — investing to expand capacity, or stockpiling parts.
These costs became conspicuous during the first wave of the pandemic, when major economies including the United States discovered that they lacked capacity to quickly make ventilators.
“When you need a ventilator, you need a ventilator,” Mr. Sodhi said. “You can’t say, ‘Well, my stock price is high.’”
When the pandemic began, car manufacturers slashed orders for chips on the expectation that demand for cars would plunge. By the time they realized that demand was reviving, it was too late: Ramping up production of computer chips requires months.
“The impact to production will get worse before it gets better,” said Jim Farley, the chief executive of Ford Motor, which has long embraced lean manufacturing, speaking to stock analysts on April 28. The company said the shortages would probably derail half of its production through June.
The automaker least affected by the shortage is Toyota. From the inception of Just In Time, Toyota relied on suppliers clustered close to its base in Japan, making the company less susceptible to events far away.
‘It All Cascades’
In Conshohocken, Pa., Mr. Romano is literally waiting for his ship to come in.
He is vice president of sales at Van Horn, Metz & Company, which buys chemicals from suppliers around the world and sells them to factories that make paint, ink and other industrial products.
In normal times, the company is behind in filling perhaps 1 percent of its customers’ orders. On a recent morning, it could not complete a tenth of its orders because it was waiting for supplies to arrive.
The company could not secure enough of a specialized resin that it sells to manufacturers that make construction materials. The American supplier of the resin was itself lacking one element that it purchases from a petrochemical plant in China.
One of Mr. Romano’s regular customers, a paint manufacturer, was holding off on ordering chemicals because it could not locate enough of the metal cans it uses to ship its finished product.
“It all cascades,” Mr. Romano said. “It’s just a mess.”
No pandemic was required to reveal the risks of overreliance on Just In Time combined with global supply chains. Experts have warned about the consequences for decades.
In 1999, an earthquake shook Taiwan, shutting down computer chip manufacturing. The earthquake and tsunami that shattered Japan in 2011 shut down factories and impeded shipping, generating shortages of auto parts and computer chips. Floods in Thailand the same year decimated production of computer hard drives.
Each disaster prompted talk that companies needed to bolster their inventories and diversify their suppliers.
Each time, multinational companies carried on.
The same consultants who promoted the virtues of lean inventories now evangelize about supply chain resilience — the buzzword of the moment.
Simply expanding warehouses may not provide the fix, said Richard Lebovitz, president of LeanDNA, a supply chain consultant based in Austin, Texas. Product lines are increasingly customized.
“The ability to predict what inventory you should keep is harder and harder,” he said.
Ultimately, business is likely to further its embrace of lean for the simple reason that it has yielded profits.
“The real question is, ‘Are we going to stop chasing low cost as the sole criteria for business judgment?’” said Mr. Shih, from Harvard Business School. “I’m skeptical of that. Consumers won’t pay for resilience when they are not in crisis.”
I have seen firsthand over the last many years how nearly all furniture manufacturers dropped a large swathe of materials and inventory they always kept on hand in favor of the Just In Time model--it is plain to see how this model exacerbated an already perilous situation without any planning for an emergency. I personally think these issues and long lead times will be with us into 2022 and maybe into a bit of 2023.
But to my current and upcoming clients, please let me reassure you that despite these long lead times, furniture is arriving. I am seeing pieces come around the estimated time, although the ship date for a few pieces continues to be pushed out, presumably due to the continued absence of materials to make the pieces. If you work with me to furnish your home, we simply must enter into the process knowing that this is not business as usual, and that there are issues no one can control, but that your pieces will get here. Eventually. I beg you for your patience while we wait for your orders to be filled.
But I would like to offer one last parting thought: in the grand scheme of things, waiting an extra long time for a sectional or dining set is not the worst thing that can happen to you. I designed some beautiful drapery for clients and we have been waiting six months for the fabric to arrive...but it comes from India. And as I stated above, we know what a hard time that country has had with COVID. My clients are very understanding and say that waiting a little longer for the fabric is nothing when they think of the grief, devastation, and loss of life in India. Some perspective can be a useful thing and can allow us to feel grateful for what we have.
I wish you all health, safety, and happy designing.
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