In this podcast, Seth discusses the current event of supply chain difficulty and offers the following perspectives as we think about the problem.
There are two things an organization can do to improve its profit right away. The first thing is to lower the inventory and eliminate slack everywhere. Company executives consider slack in the system an enemy of profitability because the buffer space does not contribute to the profit except to incur costs for maintaining it.
When an organization can cut its inventory and slack, the action can improve the profit right away. By eliminating margin, the chief executives can look smart by quickly improving profitability without taking other more drastic measures.
All is well except the slack exists for a reason. The slack or buffer allows the organization to maintain the level of service when there are hiccups in the system. Slack can also address an unexpected customer demand and enable the firm to capitalize on the extra business. Unfortunately, with the buffer gone in many organizations, many organizations are running into distress in their systems because they no longer have the cushion to respond well to a sudden change in the business environment.
As many public companies are trying to extract every last penny of slack out of their systems, they also have to resort to the second tactic for maintaining profitability. If the system has no slack, the organizations also need to lower the expectations from the customers. Customer service is usually the first to cut as organizations put up many obstacles for customers to receive adequate customer service when the transactions did not go well via a stressed system.
Like in Darwinian evolution, when the climate changes, suddenly the animals that evolved to be in one niche are having trouble in the new environment. Many of these companies, which have made promises around convenience, reliability, and showing up to treat customers with respect, are getting more stressed. Unfortunately, since companies are not humans, the ones who will get stressed are the poor frontline workers, where their actions are being measured with a stopwatch every moment.
So we, as consumers, who are lucky enough to live in an environment filled with wonders, could do two things. The first one is planning and avoiding doing our shopping at the last minute. The second thing to consider is to bring some human interactions back into business transactions. When dealing with the people at the front line, who get pushed by the organization and its management structure to do things like drones, we should realize that most things are not their fault.
The genuine fault lies in the greed that led companies to extract the slack and weasel out of a promise that we thought they were going to keep.