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Monday, August 25, 2014

Supply Chain Management

For John, BLUFThe Demoulas imbroglio has not yet smoothed out and may not for some time.  Nothing to see here; just move along.

Market Basket has been basically closed for several weeks and here along the Route 38 Corridor the local Hannafords has taken up the slack, and done a good job.  And, as of Sunday there was no solution to the Demoulas family crisis.  The lack of a settlement has surprised me, in that I saw that as one possible explanation for why after lunch today I found the Hannaford shelves with Coke products pretty devastated.  There was no Caffeine Free Diet Coke and little other Coke product.  Normally the shelves are stocked, but not today.  And, some Pepsi product was in short supply, like Pure Leaf Ice Tea, where there was no Lemon or Diet Lemon on the shelf.

The question is why?  More important, for long term interest, is how fragile are the various supply chains upon which we depend.  My wife asked me that very question last evening, using the term "supply chain".  She has been reading a novel that includes an EMP attack that disrupts everything.

I wondered if this was a short term shortage as Coke responded to a restocking request from Market Basket, so that product could be prepositioned for a push to the stores.  That is one possibility.  Another is that Shoppers, fearing future disruptions, are hoarding Coke products, and other products, as a buffer in case of supply chain disruption.

Are there other options?

Regards  —  Cliff

  Most of us who have shopped at a Market Basket realize that as part of his approach to life, Artie T provides work for the disabled.  Now, with the turmoil in the Supermarket Chain that seems to be going away.
  And recently North Korea's EMP capabilities have been in the news.


Russian Television said...

Aren't many suppliers bound by contract?  Most suppliers have cut DSM loose for their own sake, where did all the produce end up destined for MB?  By law of supply/demand, should not prices go down as other chains buy up product?

C R Krieger said...

Dear RT

I think you are correct about the law of supply and demand, but I doubt it is a placid lake.  At first supply is constricted because MB and other stores are all buying, and then MB has to cut their suppliers loose, or the suppliers have to break away, to make money.

What is strange is that Hannafords is cutting prices—probably not much—to pull in more customers or to position themselves for when MB comes back.

For me the interesting thing is that Hannfords was operating at about 35% of capacity, parking lot wise, for years, and is now up near 98%.  Was the original size a mistake, did they anticipate a MB meltdown or were they just lucky.

Regards  —  Cliff

Cindy Krieger said...

When I studied statistics years ago the professors mentioned that most retailers prefer "Just-In-Time" restocking models. The advantage of these models is that it reduces the amount of warehouse space needed and that this is a large savings for most retailers. The offset to the failure in "Just-In-Time" restocking models, sometimes called queues, is that at least one customer may go without the item and may need to wait or take his/her business elsewhere.

Secondly, statisticians are likely to determine from within the "Just-In-Time" model exactly how long a wait translates into how many customers go without finally making the uncertain assessment of into how harmful, dollar wise, this will impact their overall business. Most of the time the retailers feel that the known warehouse savings far out way the unknown "random number" of customers who will need to shop elsewhere to purchase an item the store no longer has on the shelf.

Neal said...

What nobody mentions is the profound if not mortal damage this family spat is costing the Market Basket organization. They've been out about 3 weeks and every day that they have been out, they have hemorrhaged $3 -4 M. This translates into a serious liability that must be made up before profitability can return to MB. At this point, many market analysts are suggesting that won't be possible. They've gone too far too long.

It is interesting that the DeMoulas tribe has a long and sad history of destroying themselves over family differences. At one point they were going to "revive" the old Farragut (I think) resort in Rye, NH. They got into a fight and it sat semi-finished for over a decade while the family fought. Finally, it was torn down and replaced by a large expanse of grass...still owned by the family and still undeveloped...perhaps forever.

For my part, I say a pox on ALL their houses for their aristocratic pettiness and arrogance.