We Have Too Much Stuff

Good morning.

I got sucked into a supply chain vortex on Bloomberg this morning and did some digging around so you don’t have to.

It turns out the world over-ordered during COVID and now, some supply chains are full of surplus goods and materials. This could be a great opportunity for some but signals big problems for others.

However, it’s also a good reminder of why you need to take a historic view in your planning, something that toilet paper manufacturers understood, but Peleton didn’t.

(I said I got pulled in.)

I have a quick favor to ask: please let me know what your planning cycle looks like. That will help me get the timescale right for the trends and relative metrics.

We Have Too Much Stuff

Supply chains are tricky things to get right at the best of times. Throw in a pandemic that shuts down production in many areas, increases demand in others, and changes work and life patterns for many, and it becomes even more difficult. So, when even a small change by consumers has a substantial effect on suppliers, something the size of a pandemic causes enormous difficulties.

“The bullwhip effect is the tendency for small changes at one end of the supply chain to lead to big swings at the other end.

So, for instance, retailers might anticipate or experience a drop in customer demand, which leads them to cut back on their orders, which causes suppliers and manufactures to pull back production. “

No, not that bullwhip effect

Adding financial hardship to the mix means that, even if the goods on offer were what people wanted, they weren’t going to buy something unless absolutely necessary. 

The short version: we have too much stuff because we made stuff people didn’t want anymore or people don’t have the money for stuff they do want.

Chipocalypse Now

The big news right now is the glut of memory chips on the market and are resultant crash in industry leaders. Chip foundries ramped up production to meet COVID-era demands (remember when you couldn’t buy a gaming PC or new car in 2021 because there were no chips available?), only to discover that austerity-minded consumers aren’t buying new gadgets.

This has led to chip sales dropping by 30-50%, a collapse in prices, and companies racking up losses in the tens of billions of dollars. See Bloomberg for more.

What will complicate things even further, are US and EU plans to increase domestic chip manufacturing to boost competitiveness, reduce reliance on China, and insulate against any attack on Taiwan. This increase in chip manufacturing capacity will cause additional ripples in the supply chain.

It’s Not Just Memory Chips

More generally, there are record-high US retail inventories stacking up, waiting for consumers who may or may not appear. Fears are growing that these inventories are so great that they may be worth just pennies on the dollar. 

“This suggests that $1 of inventory is associated with only $0.6 in sales, far lower than long-term trends and clearly unsustainable in the long run.”

Read the whole article on supply inventories in Bloomberg here

Take a Historic view

In the short run, this suggests that there are bargains out there for organizations that are reliant on some of these over-inventoried goods.

In the long-term, it’s a good reminder that a historic view is useful in supply chain and demand planning, something that’s summed up well in this piece in Bloomberg ‘How Tech Companies Could Learn Something From Toilet Paper Makers

On to the numbers

(Still not sure of how to use these metrics in your risk analysis? There’s a cheat sheet at the bottom of the email but the user’s guide is here. Want to know more? Read the white paper.)

Relative Values (90-Days)

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Trends (21-days)

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Commentary and Evaluation

Brent Crude

Potentially impacting: Fuel prices | Gound shipping costs. | Plastic prices | Changes to fuel subsidies (potentially leading to unrest) | Cost of living (especially transport and heating) | Changes to traffic volume/transportation choices | Demand for automotive products | Theft and smuggling.

Brent Crude is low for this 90-day interval. Prices increased moderately over the last 21 days after significant fluctuation in the low-$70 to low-$80 range.

Iron and Steel

Potentially impacting: Cost of construction projects | Construction project timelines | Cost/availability of raw materials | Infrastructure project timelines/costs | Cost and availability of finished metal goods | Value of scrap | Value of 2nd hand equipment/vehicles.

Iron and Steel remains very high for this 90-day interval. Prices increased moderately over the last 21 days after slight fluctuation.

Market Volatility (VIX-US)

Potentially impacting: Availability of capital for investment | Interest rates| Share prices | Consumer confidence | House prices/rent | Financial certainty/uncertainty | Financial models | Stock-based compensation values.

Market Volatility (VIX) is low for this 90-day interval. The index decreased moderately over the last 21 days after significant fluctuation.


Potentially impacting: Bread, pasta, couscous & noodle prices | Changes to food subsidies (potentially leading to unrest) | Cost of living | Movement from low-income to food insecure to undernourished | Increased theft or graft in loosely governed areas | Demand on charities.

Wheat is high for this 90-day interval. Prices increased moderately over the last 21 days after moderate fluctuation.

Ocean Freight (FBX)

Potentially impacting: Supply chain costs (direct and indirect) | Supply chain delays | Port capacity/throughput speed | Customs clearance | Availability of goods and materials | Consumer demand/hoarding.

(No change) Shipping (FBX index) remains very low for this 90-day interval. Prices ended relatively flat over the last 21 days after some fluctuation.

Up-to-date shipping data supplied by our partner Freightos

Palate cleansers

Rio Tinto may be looking for a new head of radioactive safety in Australia

Enjoy the last day of January, here’s what February brings

Kevin Killeen, @knoxkilleen on Twitter

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