Did America Really Lose Jobs Abroad?
Some say China is creating a middle class for the first time in history. Some Americans are sore because they believe that their jobs were lost abroad to support such claims. In reality, though, do we understand what happens to a supply chain when lead time increases?
It's like this. If the lead time increases, then inventory stock levels go up. What happens when you go someplace and the product you're looking for is not there? Naturally, you don't live without. You ease back into your car and drive to the competition. If this happens frequently enough, you begin to shop more regularly at the competition.
Still not sure how inventory levels increase when LT increases? If the product once took four days to reach the shelves, and now it takes four weeks, then does that not mean that if you only had ONE place to shop, you would have to wait quite awhile before the next shipment? Of course it does. Therefore, the safety stock levels increase and / or re-order points multiple.
Safety Stock Increases
In anticipation for a longer lead time, there is more inventory on-hand. Companies do not want you to go to the competition. Since it takes so long for the product to arrive now that production has gone abroad, the stores simply cannot risk losing your business. If you think that they are going to put a "rush" delivery on for your items, think again. To travel by air across the ocean is four times the delivery costs, and frankly, the airplanes can't hold as much product as an ocean liner. Inevitably, safety stock (i.e., inventory) levels must increase.
Note: To learn more about what "rush" orders do to the bottom line, go to the Pricing for Profits Webinar.
The other option that companies have to avoid stock-outs, is to order more frequently. I assure you as a consultant that I have been to small retail stores, which are miles from the nearest Wal-Mart, which cannot afford to re-order more frequently. The population in these rural areas does not consume enough, and the minimum order from vendors requires too much cash flow. Just not practical. Sorry.
For the more densely populated areas, more frequent ordering can take place, but at an increased cost in delivery, freight, and labor. Each time an order is made, there is an order cost. The more times you order, the higher the order costs. Therefore, the costs associated with increased reorder points has to do higher order costs, transportation (e.g., fuel, drivers, trucks), inventory (labor to receive in and stock the goods), and middle management.
I'm just not buying that we lost jobs abroad. By moving jobs abroad, jobs in warehousing, middle management, transportation, and logistics and distribution increased. People re-trained themselves. Americans are not a dying nationality. Some of us just don't understand fully the more intricate details of supply chain management. Hopefully, this blog offers a more expansive discussion.