How To Handle Delays

Will:
All right, everyone. We are back with another episode of Safety Stock. It is July 8th, Dan Magida. How are you doing good, sir?

Dan:
Well, I think the better question is, Will, how are you doing? Happy Birthday! Just celebrated your 21st birthday. So you must be feeling great today.

Will:
Yeah, man, gotta go out the Tigertown Tavern. Get my t-shirt get excited. It’s was a great birthday. We’re here up in the Adirondacks for the first time in a little bit. And so, yeah, we’ve got a really good show lined up here. We’re gonna be actually covering an interesting topic for, you know, applies to all businesses. And it’s specifically when you are expecting raw materials in, but you have delays whether they’re in, in your control or something that, you know, your direct actions caused, or if it’s something that’s out of your control and what you should do in those situations who should be informed. And how do you go about it? One of the articles that spurt this discussion, Dan was the article recently that came out with Tesla and that they had overall, they saw their stock drop. They’re not able to meet the high demand for electric vehicles that they’re seeing right now in a lot of those situations are because they had factories impacted. They have some oral material issues. They’re Shanghai facility was closed for a period of time due to COVID. And Dan, this is interesting because they’ve had to communicate both to their investors and to wall street, et cetera, about how they’re now not going to meet certain marks because of this. What are some of those things that we think Tesla should have done either previously, once they’ve got wind of this, or is this something they should continue of doing, knowing that they’re gonna miss the mark for a little bit when it comes to production?

Dan:
Yeah, I, I mean, I think Tesla’s an interesting scenario too, where, I mean, in the, the notes and what some analysts are saying as well, is that there’s still a lot of demand and the demand is still outs, stripping the supply, but then they’re also shutting down plan, like the Berlin factories being shut down to your point, though, it’s all about planning and then a further extent, like communication to the customer or the end and the end buyer. Like here’s how long you could be waiting for we’re all materials. We know a shortage, especially in the semiconductor chips and companies aren’t boxing out like Netten who’s sales forecast missed the mark as well. They’re competing with the Tesla and other and Sony and other car makers for those chips. And what they’re doing is they’re paying more for those chips and just having more supply, so cutting into their margins short term, but then hopefully maybe delivering to the consumer its faster. So that’s always a strategy that you can play as well. So is it a short term customer gain margins hit or be transparent communicate, this may be longer of a, of a lead time.

Will:
Yeah, I think you you’re right in that, there’s the communication piece that once you start knowing there’s delays coming from the raw material and it’s gonna impact production, that that’s the point in time to communicate to all parties in that you’re saying not only internally, Hey, we’re gonna have a tough time meeting X amount of output. You’ll see executives get involved to do what they can. But additionally, you know, when you’re a public company like Tesla or similar to Nintendo, you know, there’s the expectations that other people have from a stock perspective where, you know, they’re, they’re really looking at things like are you meeting demand? Are you meeting certain top bottom line goals and that as it affects your stock and how it’s reflective of that? I think when you’re planning as a supply chain professional, there’s certain things that you wanna make sure are as insulated as possible.

Will:
And when you think about your core products that you produce, we talk about safety stock. It’s our motto, it’s the name of the show. There are certain things that need to be protected and the integrity of those parts are what you’re sole focus should be. So in this case, if it’s, you know, if it’s a battery, you know, if it’s something related to the engines, obviously Tesla has those things in mind, if you’re an Nintendo and you have certain chips, you know, to their point, they are buying an excess to prevent anything that would happen in the background for them to be able to be producing their goods. You know, we see other people where they take, you know, they might have taken two months from a safety soft perspective, but now they’re taking three to four and they’re saying we will live with the inventory, blow back in terms with the P and L for that point in time to make sure we’re still hitting our goals with our retailers.

Dan:
No, exactly. And it’s one of those things where it’s still really hard for companies to be in. And, and as you can see, this is impacting companies of all sizes. How much inventory do you want before it could cripple your business and cripple in the sense that your margins take a hit. But also cash flow takes it too, cuz you’re adding this component to more, more warehousing. That’s something that you may have not planned for as well, but there should be short term shocks and there’s markets where hopefully this is alleviating soon for you. I mean the one area that we talked about in earnest is on the freight side is where like container rates are actually decreasing. So even though you may have stopped how before future looking, you could be seen or drive in cost that way as well. So I always look at it that way that these are short term shocks to your supply chain. They should not be like endemic by any means.

Will:
Yeah, I, this makes me think of a time where, you know, with one of the companies that I worked with, you know, they had purchased a large business unit and they took on inventory with the purchase of that business unit. And some of the inventory levels were all the way out to a year worth of inventory. That’s great. It, it, it, it was a ton. And in order to continue to get new product, part of the deal was that you had to take other items that weren’t necessarily, you knew that were going to sell. So you knew you were going to keep contributing to the issue at hand. And so part of the goal was to eliminate this inventory systemically by reducing the amount of items you were buying by fire sale, which you could and getting it down to a management that you could deal with. But I mean, this took years just to get down to appropriate amounts. And so you, you, and

Dan:
That could be also MIS forecast on their marketing and sales side too, where there’s a lot of factors that pulls into like how aggressive you, you get in stock,

Will:
Right? And so you see why these executives, why they want to control the inventory perspective, cuz that is just dead money that they have on their book. That if it gets to a certain point, it’s almost impossible to get rid of without taking a financial loss. Overall. I think the interesting thing is, is that as we continue to see these companies move forward, they’re gonna have to make inventory decisions in order to both protect their supply chain. But also it’s going to reflect their financials as they report out to wall street and to different parties, interested in those metrics. If you have certain things that you want to talk about, whether it be times where you’ve seen inventories bloat, if you’ve seen safety stocks that have gone way past where they should reach out to us or hello@anvil.com, that’s A-N-V-Y-L.com. Or if you just want to tell Dan McGee that you like listening to the show and you wanna refer to a friend, that’s fine too

Dan:
Always will take a great compliment, but you know, it’s, it’s a team effort here.

Will:
Absolutely. So thank you for listening and we look forward to talk to you soon.