Monday, January 19, 2009

Maybe it's not really so bad?

The Coyote points out that redundancies are happening faster than drop in output, so he thinks at least part of the crisis is anticipatory behaviour.

Another possibility that occurs to me, is that the credit crunch is a pretext for businesses to become more efficient and cut out deadwood in a way they'd long been planning to do anyway.

6 comments:

Nick Drew said...

OK, but look at the inventory stacking up

Sackerson said...

You'll know better than I. Perhaps some are affected by panic from bankers and customers, and others are taking the chance to do the ruthless things they should have done a while ago.

Paddington said...

That's exactly what happened to a friend of mine right after 9/11. He was working for American Airlines.

Anonymous said...

Its being caused by inventory build up. If you take the car industry, the numbers are down about 30% - but this means it is taking a long time to deplete stocks - and stocks are being depleted at the dealers, at the ports and at the factory. Then you have stocks of parts within the supply chain. What we are seeing is that car dealers may be down 30% on new car sales but car component suppliers are often down a staggering 90%. In those circumstances they need to cut jobs drastically. Probably they won't cut fast enough. Problem is that the component suppliers might not survive and then if business picks up there might not be any suppliers. Take Honda in Swindon - they are going to stop production until June! Workers are on 80% of full pay but the problem is that part suppliers are getting no business at all, for 4 months. Not a bean. A local company making inertial reel seat belts has already gone under. Where are Honda going to get those parts when they restart production?

It's hell out there, let me tell you. Most companies would be shedding far more staff if they weren't concerned about the impact it would have on their survival in the longer term. Give it 6 months and many of these will have to throw in the towel.

Paddington said...

What Anonymous talks about above is a direct consequence of the 'on demand' business model that was touted as much more efficient. It is that, until there is a significant change in demand. The consequences then become a positive-feedback loop with highly non-linear effects.

Sebastian Weetabix said...

Also known as "Just in time" to us engineering types. Also known as "Jesus, it's here".

It's a very effective way to transfer costs (& risk) to your suppliers.