Internet DNA Podcast
In this episode we discuss Just In Time management, and how a minor change in habit, can make a major disruption to supply and inventory. Sounds dry... not with us. Dan knows more than is really healthy to know about loo roll and Abi gets a crush on Pat Riley @_rileyio and we may talk some sense too.
Transcription
(this transcription is written by robots… so don’t be surprised!)
Abi: [00:00:00] Hello and welcome to this week's episode. Internet DNA. With me, Abby and me, Dan, this week, Dan wants to put his point across about the fact that perhaps we weren't all hoarding loo roll or stockpiling faster in our sheds and Larder and cellars. Perhaps we were actually just by a little bit more than I meant to, which we were meant to because we went to go shopping so much. But that little bit more is what pushed us over the edge into empty shelves. That's for us. It's all about just in time management, isn't it?
Dan: [00:00:35] It's all about supply chains. What it means when you have extremely stable supply chains that are absolutely optimized and then you go into something that is totally out of the ordinary. Okay, so let's talk about new. We all had a great giggle. People fighting in supermarkets over loo roll. But what created that situation where people started panicking about loo roll is to do with the fact that loo roll supply chains are incredibly optimized. There are certain amount of bums in the world that need wiping and that really doesn't change very much. That tied in with the fact that loo roll is a very particularly low margin product. It makes a lot of sense in a normal world to optimize that so that you have the capacity to create and delivering a very specific amount of loo roll to the world in general and to supermarkets so that they don't want to store it. The longer you store blue rolled, the lower your margins are. So the supply chain optimized from the production mills all the way through to sitting on your show in supermarkets is exactly optimized for your normal buying habits, because normally you don't need any more or less loo roll, then you usually do. So suddenly the world goes from buying nine loo rolls to twelve loo rolls. Actually you empty shelves very, very quickly. In America, a Wal-Mart loo roll is delivered within one hour slots, so it literally they deliver loo roll knowing that that is the time where the shelf will start to get low and they open a new loo roll and that's that timed.
Abi: [00:02:13] So the overheads of storing zero so that you're not just having one at slots is warehouse costs, but surely the cost of the truck and the driver is going to be about the same amounts of warehouse costs. Now, you know that loo roll is never going to go out of fashion, so it's not like it's a whole heap of debt stock. So why wouldn't you have all the things stolen?
Dan: [00:02:32] Well well, first of all, why would you produce more? Loo roll is needed. So why would you produce more loo roll in a week than is needed in a week? Not only that is why would you have mills producing loo roll at 75 percent capacity? You would have mills running at 100 percent capacity to produce exactly as much loo roll is as needed in a week. That's how fine the margins are. Having a mill sitting at 50 percent capacity is costing you money. Having loo rolls sitting in warehouses is costing you money. The truck driver has to go anyway. I agree with that. But he might as well go from the mill to wherever it's being delivered. Why add to truck this one? I'm talking about it being incredibly optimized and allowed to be that optimizes because they don't get wild fluctuations or even mild fluctuations, because effectively across the globe, the same amount of bums are wiped every day as the day before and the day after. Within a minuscule difference. Therefore, you can optimize these things to work exactly as predicted. The problem is with Corona virus alert, people who used to go and work the Obama in the office are now wiring their bombs at home. I don't want to get into the specifics of the fact that commercial loo roll is delivered and created in a different way to residential. But you can imagine that's the case if you've ever used an office loo rogue wave stratifying office loo.
Abi: [00:03:57] Well, for our home. It seems to be the stuff available is actually, you know, far too much about new well and bubbling just in time. Inventory management, which came to the UK in the 80s in Japan where they had to work this way because they didn't have enough natural resources to be able to store them in warehouses and things just like actually the whole work life balance you make what fun? Then people be less likely to have a life and therefore you'll get more work out of them. That suggestion, these experts, is that so they're giving us some useful things that are great until they're not. Right now, I get a real thing and you get to tell me the past is completely different. And that's because there was no one in Italy well enough to make pasta.
Dan: [00:04:43] Actually, I wasn't. I was gonna say pasta is much the same. Consumption is very stable. It's a little bit more lumpy than liberal liberals like a perfect storm. Any product where demand is very, very stable and you suddenly get spikes in it. You have a problem all the way back to production. That means. You can't even ramp up production because all the mills are already running 100 percent to just do the normal amount. So we want to talk about supply chains and we were talking about how they're optimized. And this has really come around from computers because computers can start to really crunch numbers about how much are you going to need? Today, tomorrow, in 15 years time, next month, let's say we are going to start buying the raw materials to it. Being on the shelf is a month. Your computer will predict how much you need to produce this month for next month. Well, that allows you to do is really, really shrink down any wastage in your company. Therefore, you can be more profitable or you can sell for a lower price. Well, you can compete in the market. And if you don't do it, you'll know your role is more expensive and therefore no one buys it. There's an compounding issue, which is historically there would have been lots of little shops. Now little shops have to have stock and they don't run such tight time scales. When the corona virus panic buying everyone cold, it started. What actually happened was people started going to local shops because they did have stock. The supermarkets ran out. Everyone went to the co-op. So the co-ops run out. Everyone went to the local shop. Now, in the old days, everything was on local shop. So you would have had much more sponginess for that kind of effect to have happened. So we wouldn't have had quite such a shock quite so quickly. We've got these massively optimized systems and almost everything. Now, what it leads to is the appearance of hoarding and panic buying. But actually, it's not. It's a symptom of slightly different buying patterns globally.
Abi: [00:06:36] The industry that really pioneered in the UK annual public globally, Just-In-Time venture is obviously the car industry. They hold no parts or nothing. And it's a whole perfect chain which has got to pick it up now. I read recently the largest car companies are losing a billion pounds a month and they've only got three billion in reserve. So that's not going to be long before the biggest car company cannot cut.
Dan: [00:07:01] And not only that, but as I said, they've got the perfect chain. What happens is when the small players don't get paid, suddenly when they want to start up, they haven't got light bulbs. They haven't got all these things that they need because those companies didn't survive. So you get this shock that happens all the way down the system. And these things all work lovely and are all optimized for a steady supply. Now, what's happened in cars is no one's buying cars and no one's allowed to go to work. If you weren't allowed to go to work and you wanted to buy a car, that would be fine. But no one's buying them because no one.
Dan: [00:07:35] I know that. We've lived in a very calm and stable time, a common era.
Abi: [00:07:41] And I wonder if they're going to stop all this just in time management as the world seems to be getting a little more rocky.
Dan: [00:07:49] Companies are going to look at it in a number of ways. Some companies are going to assume that it will go back to business as usual, maybe at a lower level. The next option is actually the Corona viruses, just the first of these and these will probably happen in a six time period every five years, 10 years, 20 years. One of the functions of our globalised planet is this is now going to happen. They might say, right, we need to build in some resilient or just in time. So let's say Corona virus took six months. We need to have six months worth of resilience that would tell to have six months worth of money.
Abi: [00:08:24] What I did find interesting about this, JIT. Apple have always done it. They've always worked in this way, which is probably how they make so much money. So it's about say, which is why they can offer good quality products, but their products are so expensive. But it's why there's always a wait. What they've created with this just in time management. So they've streamlined everything and made more profit and make it good for themselves. But they've also created this. I've got to get stuck. Got to get it. Because there's only a finite amount because they haven't produced too many. They've produced probably just under just enough to keep that excitement in need. There's nothing better for making you want something when you can no longer have it because it just sold out.
Dan: [00:09:03] That's the principle of marketing scarcity while stocks lost type idea. The knock on effect just in time management, they've created a whole culture around which allows them to run a jayanti because they don't have to change for demand. They want people to not be able to buy their product today so that they preorder, create the hype that everybody feels like I've got to buy it now. Otherwise, tomorrow they might not be.
Dan: [00:09:29] Tesla car works on the same way. What they do? They work in the same way, but they realize that people will also pay more money. If you go, oh, instead you've got to wait. You've got to catch. You've got to build it for you. We have held off building it for you so that you can add yours unique custom elements instead of getting one that you just buy the shop floor. They entice you to customize it so they can do just in time by not building it till you want it. And I get money from it.
Dan: [00:09:55] And all prestige car manufacturers used to work on. So used to say, oh, I would like a new Lamborghini and they would say, for now, you can have one. We'll deliver it in eight months time. What color would you like? What leather do you want? The purchase of that super high value item is that it is customized to you specifically. That also means you can say, well, what type of stitching would you like to use?
Abi: [00:10:18] I think Zaara very cleverly. The clothes shop. So instead of buying the whole season's clothes prior to the season and always having the worry that you may have an awful lot of debt stock, they can make it so quickly that if suddenly everyone decides that purple crop t shirts in, then they can just work out a whole different type of cropped purple t shirts mid season. And so that all is right on. If you've seen something coming into fashion, Zaro be there on it, which I think is very clever.
Dan: [00:10:48] It makes sense to under produce all the time. And then either increased the print run, make more of it. If you think, wow, there's really a demand for this, also, you're actually we've got a new product which is similar, but we've got 80000 of these. And once they're gone, they're gone. And that creates a desirability about the product.
Abi: [00:11:05] And the other people that I was quite surprised that absolutely use just in time inventory management is Kellogg's. I mean, none of us like Estelle Cornflake. I'm surprised there hasn't been a run on those cereals. And when you said actually the O'Neills that there was things that was a cereal, that they were in that way, which is probably why Wal-Mart needs its hourly stuff, because people like Kellogg's Chicago are we're only going to give you what you need for now.
Dan: [00:11:29] The reason why cereals didn't initially disappear off shows is that most people have enough cereal in their house.
Abi: [00:11:36] I've got a whole heap of stale Kellogg's halfway through the pat to change their mind to go on board.
Dan: [00:11:42] I would prefer something with chocolate sprinkles on the good side. I need more vegetables and that sort of stuff. And oddly, they didn't seem to sell out well. You would've thought vegetables everyone want go on. Right. We need to get some vegetables. But that's not what people bought. Actually, what people bought was what I call prep cash, fruit. So stuff that you can stick on your show from last thousand years. That's what people wanted. Which was weird because I thought, well, surely you've got that stuff that's been sitting there for six years. But when people started saying all the shelves are getting low, that then prompted everyone to go, oh, my God, I'd better go buy some more. And that's what led to this idea that people were walking out with shopping fools of loo roll and pastor. It wasn't bad. Well, it was the fact that there was an increase in demand that led to an emptying of shelves that led to the perception of everyone's boat buying. I've got to get out there and bulk by myself. Do you see what I mean? It was became a fulfilling.
Abi: [00:12:37] I'm going to change the subject slightly. Just in time management, we've got to just about in time finish. But you sent me an article this week saying Solar power, not cyberpunk. Oh, you're right. I thought, this is amazing. This guy, Pat Riley, whoever you are. Everything he did or said is what I do. If he was on a dating app, I would be 100 percent match.
Abi: [00:13:00] I think I know you. He's probably married. I mean, I.
Abi: [00:13:06] Which brings me to dreams. I have really weird corroded genes, all about friends, family, loved ones. All just leaving me. Very strange. Corona. Wow. I want to give it to solar punk or cyberpunk. A really interesting cyberpunk is a dystopian future with machines that we merge with and it rains and it is dark. And that's how sci fi people look at the future. Whereas solar punk, which is now a sub-genre, which I'm gonna get into, is all about a Utopian future using those machines to help us live in harmony with the environment. Thank you, Pat. Why don't you write about just in time management?
Dan: [00:13:51] I might need that to the solar time management, but we've got to go.
Dan: [00:13:59] We've got to give you some insight into how computers, while optimizing our life, to give us the lowest pricing and the best availability goals, have some repercussions in situations like this, which are unprecedented. And you wouldn't expect them to have that kind of mitigation built into them.
Abi: [00:14:15] I look forward to speaking to you next week then. And you. All right. Bye. Okay, bye.
—
Dan & Abi work, talk & dream in tech. If you would like to discuss any speaking opportunity contact us.