“A good sign for our economy is that companies are slowly beginning to rebuild inventory,” says Julie Niederhoff, assistant professor of supply chain management in the Whitman School of Management at Syracuse University. “But the recession walloped a number of suppliers – those that are still in business worked hard to reduce their inventory investments and free up capital and now don’t have the goods they once did to pass on to their clients.
“The result of this lag of goods is a trend towards ‘coordination stock’ – that is, companies that sense a shortage are inclined towards overreacting and hoarding stock, which essentially exacerbates the situation by creating artificial demand, and leaving suppliers with the unfortunate choice of building capacity to meet this artificial demand or leaving some of their clients in the cold.
“Savvy suppliers can reduce the impact of this gaming system by keeping production or capacity at or just below what they calculate as the real demand. This way, they can better utilize their existing capacity and best meet the needs of their clients. Suppliers who build to meet the artificial demand will only be left with a surplus of goods or unused capacity – which will only lead to a slower climb out of the recession.”
Professor Julie Niederhoff is as assistant professor of supply chain management in the Whitman School of Management at Syracuse University. She specializes in supply chain contracting, behaviors related to supply chain, operations, supply chain management, behavioral operations, and decision-making in operations.