Wednesday, March 04, 2009

Down the bourgeoisie!

There is a strong undercurrent of WJB-esque populism on both sides of the political spectrum. Today I got to see it surface when somebody blamed the fat cats for the current ammo shortage:
I think it's the ammo manufacturers taking advantage of a demand side spike to run up prices when they could just as well pump out twice as much ammo and we could all get ammo at the same price we did last year at this time.

I had to respond:

"No, it's not.

I know it's fashionable in America to blame rich people, big business, fat cats, and whatnot for every misfortune (hey, at least we don't blame Jews anymore; we're making progress,) but this shortage is just a natural result of modern business practices.

See, once upon a time, it was common for American businesses to produce everything they could. Then they would send it to wholesalers, who would in turn sell to retailers who would buy all of it they could afford.

In the days before instantaneous, nearly-free, cross-country communications and three-day coast-to-coast delivery, this made sense.

Then in the '70s and '80s, American manufacturers got their butts kicked by the Japanese, led by Toyota, who had made a religion out of Just-In-Time inventory control. Now everybody uses it.

Federal Ammunition Co. will look at last year's Q1 business and only order enough components to produce what it thinks it can sell this quarter. The wholesalers will only buy based on what they think they can sell, again based on data from previous years. Same with the retailers. A big enough demand surge at the retail end can suck the pipeline dry all the way back to the component end of the process.

If I only sold 10 boxes of .44 Magnum a week at Anytown Firearms, I'd only keep an inventory of 11 or 12 on hand. Those unsold boxes are liabilities, after all; money tied up that's not turning a profit. If somebody comes in and buys all 12 boxes, I'm out 'til next week.

If he does that to every store in the area, and we all need to reorder from the same wholesaler to restock our shelves, we'll probably empty the wholesaler's shelves as well. And the wholesaler doesn't get weekly deliveries, he gets monthly deliveries. Meanwhile, since each dealer in Anytown only got an allocated 4 boxes of .44 Magnum, and word has gotten around at the range that there's a .44 Magnum drought, those four boxes are going to fly off the shelf. Now we're stuck until the wholesaler can get more from the manufacturer. Next month. See?"


Wow, same exact endpoint, with 99% less conspiracy!

39 comments:

Anonymous said...

Yes! In today's world it takes a consulting firm and 20+ MBAs to figure that out! Common Sense 101 has not been offered in schools for a long time.

Anonymous said...

I heard they're making big piles of ammo in the middle of these deserted army camps. When they get the piles big enough, and the gun wackos gegt desperate enough for more, they're going to put a big "SALE" sign on them and start an internet rumor. All the wackos rush through the gates, and shazam, 2A problem rounded up and solved.

There ya go Tam, I put 50% more conspiracy back into it... your story just isn't bloggeriffic enough.

fast richard said...

You are right about how this shortage has developed. Demand has increased because there is a political risk of future supply restrictions. People are increasing their personal inventories of ammo and components.

Suppliers can increase production to their short term capacity, but uncertainty about future demand and future regulations would prevent much investment in increasing long term capacity. Even if the current administration doesn't start adding more restrictive regulations, it will take time for the supply chain to refill and stabilize.

Anonymous said...

I'm also sick and tired of the old "*Insert Industry Here* is under producing to raise prices" canard.

You can't increase profit by decreasing volume. You can raise prices temporarily, but the decreased volume eats into any apparent gain. But your competitors will make up the shortfall, and then you have given up market share for nothing.

Tam is right. Learn something about the basics of commerce before you opine, please.

Nathan Brindle said...

Some people just ain't got no sense.

Anonymous said...

*stomps boonie hat on floor*

But, but my life is empty, unfilling and boring (and I hate my parents)! I need my conspiracy theories. I demand my conspiracy theories.

Shootin' Buddy--sitting in a basement in a Wookie suit.

Billy Beck said...

Let me only point out that the end-logic of Just-In-Time inventory control was found in the Soviet Union.

There was once a time when American manufacturers and sellers could afford to cater to markets. We lived fat because we produced on that level. With regulation and outright theft, this government has priced everyone out of that capacity.

I was in a Guitar Center store last week. There is a huge wall of accessories that they like to show off. I asked the guy about a set of tuners for one of my guitars. "No, I haven't got them, but I can order them for you."

"I can do that myself," I said. "You're fired. Good luck with that."

Perhaps that was a bit unfair. After all: the guy's an imbecile when it comes to these things. He might as well be a walk-in from the upper Amazon when it comes to stuff like this.

The fact remains: very few can now give me what I want when I want it. I remember when things were very different. It was a fact: it really happened and I really lived it. It's not like that anymore. I know why, and I know what it means.

jon spencer said...

Has anyone contacted several of the ammo manufactures and asked for there production numbers and schedule?
Hopefully they are running at or near capacity.
If they are, sooner or later the shelves will fill back up and the prices will come back to somewhere near normal.

the pawnbroker said...

"...word has gotten around at the range that there's a .44 Magnum (or .223, ebr, coffee, gasoline, generator or toyota)drought..."

start with a bit of supply/demand, mix in some justintime inventory control, add a dash of perception and a smidge of hype/hysteria and whaddaya got? p-r-o-f-i-t! (uh, joe, let's bump that next case of .45 to $25/50, okay?).

(thanks to our man in the pulpit and salesman of the year, barack! huzzah! obama!)

jtc

New Jovian Thunderbolt said...

So it's not the Fat Cat's fault? It's the "Average Sized Cat with a Bit of a Spare Tire Around His Gut But Only Because He Just Quit Smoking" Wholesaler Cat's fault?

THAT BASTAGE! I knew it! They're all agin' me!

mcthag said...

99% less conspiracy?

But but but...

Next you'll be saying Oswald really did it, Man really did walk on the moon and fire can melt steel.

And that doesn't even account for what the queers are doing to the soil!

Anonymous said...

Obviously you do not deal with Eley.

The entire smallbore world has a mental image of their Bairr-mingum Works as the "Dark-Satanic Mills Ltd." etching by Blake. Young Engels had a Volcanic and a paper route until he wandered through their estate gate one dark night.

When a WWII cartridge-assembler wears out (really--some haven't yet, and there aren't any new ones!), they scrap it, and adjust their world output, and its price, accordingly. True, there's an externality involved ('Labour'), but wouldn't you think they'd have an island somewhere, an ex-colony or something, where capital investment was still legal?

Gunmakers like to run for NRA offices. Leather-toolers sponsor trophies at the match. But a lot of powder-pressers act like they want you to hate them.

Incidentally not one American maker produces match grade smallbore. Not a one.

Linoge said...

Bah. You cannot honestly expect people to understand, much less apply, the concept of "supply and demand" to their lives... I mean, that is all Economical and shit, and is just made up by the man to keep the poor boy down, and the manufacturers are just all willing pawns in the whole show.

*sighs* Hell, I am not even sure if "modern" schools bother teaching supply and demand before college these days, much less inventory management, production scheduling, and all the rest of that fun stuff...

Rick R said...

Tam, you sure know how to ruin a good thread by applying logic!!!

One question: WJB-esque???

TJP said...

Billy Beck said:
"'I can do that myself,' I said. 'You're fired. Good luck with that.'"

What a great answer. I'll use that one next time.

Let's not forget that inventory is a) taxed in many places, b) the excess takes up space that could be occupied by something that is selling, and as previously mentioned, c) it ties up money that could be used to buy more of what's hot.

Some folks are complaining about alleged "gouging" with the prices of black rifles. To each his own; I'd rather that they sold for above replacement cost so there are three on the shelf with the next shipment, instead of only two. Then I might have a chance to get one some time before the Sun engulfs Earth's orbit.

It's really simple: people are buying up everything, and the economic future looks bleak, so the manufacturers are being cautious about stockpiling materials, expanding facilities and over-hiring. High demand and throttled production means shortages, just like when demand is high but prices are "controlled".

Anonymous said...

I had to hop over there to see what you were talking about. Seems 99% of those distinguished marksmen weren't testing anyone's supply chain but WalMart.

I'm not really against the idea of WalMart, but they are noted for their tight inventory cycle, and if they're out of something, I know where else to try. And ISTR that WalMart had a policy of backing out of the pistol ammo market anyway, so why would survival-types see them as their only source? Sportsman's Guide isn't sold out.

There's some populist naivete at work here, and conspiracy isn't even the most shocking aspect. Some of those commenters act like meat comes from the Meat Dept, IYKWIM.

Billy Beck said...

TJP: "What a great answer. I'll use that one next time."

I am The Last King in this land: who knows who once ruled America, and there were once uncounted millions of them. This is not a contradiction.

Keep the light burning, even if you're the only one that you can see around you.

Fire them all, as often as you can. And when these frauds are gone, the ones left might be able to start building again.

Spread it far & wide with my earnest compliments.

TBeck said...

WBJ=William Jennings Bryan, an early evolutionary stage of the hominid line Homo algorus. The fixation, however, has devolved from gold to carbon.

I dropped by Wal Mart today to fill a prescription my doctor had sent in earlier in the day. After waiting in line for ten minutes, the pharmacy cashier tells me that they didn't fill the order because my insurance wouldn't cover it until the end of the month. I reply that I can swing $4 myself, thanks, and can I get the pills? Come back in twenty minutes.

So I mooch around, picking up a copy of THE CHRONICLES OF RIDDICK because I want to be Vin Diesel when I grow up. My wife wouldn't mind me being Vin, either, come to think of it...

Anyway, I wander over to the gun counter not really expecting much. On Saturday the only .223 they had was Remington hollowpoints for $18 per twenty. Lo and behold, what do mine eyes see? Two 100-round boxes of Remington .223 FMY for $40 a box. That's a quarter-per-round less than the the crap being sold at the last gun show. I only regret that I had but two boxes to buy.

Tam said...

Billy Beck,

Having been responsible for stocking stores, that way leads quickly to reductio ad absurdum.

"Do you have a Skeet 2 choke for my Perazzi?"

"No, sir, but I can order it for y..."

"You're fired!"

"But did you not see the sign? It had three lightning bolts and a skull with crossed M-16's. This really isn't a Perazzi choke tube kind of..."

"This is a gun store, is it not? I said you're fired!"

"But I can orde..."

"You're fired!"

"Fine. Go to big box mart. Maybe they can fix it for you when you break it, too."

Ken said...

See, once upon a time, it was common for American businesses to produce everything they could. Then they would send it to wholesalers, who would in turn sell to retailers who would buy all of it they could afford.

In the days before instantaneous, nearly-free, cross-country communications and three-day coast-to-coast delivery, this made sense.

Then in the '70s and '80s, American manufacturers got their butts kicked by the Japanese, led by Toyota, who had made a religion out of Just-In-Time inventory control. Now everybody uses it.


A couple of things come to mind with respect to Tam's entirely accurate example and Billy Beck's comments. First: I wonder when firms first began being taxed on inventory, at least in the U.S. I will have to look that up. Okay, even without taxation there are costs involved in storing finished-goods inventory, but for relative nonperishables (like maybe guitar tuners, which remindeth me I need a set myself), I bet taxes make a big chunk of the total cost.

The extent to which inventory tax (and whatever else of the regulatory climate applies)stand as yet another sterling lesson in Bastiat's, and later Hazlitt's, "that which is not seen."

The other two things about trying to slather JIT "as is, where is" on the American landscape are: 1. America's a heck of a lot bigger. It bears thinking about; quantity has a quality all its own.

2. America has something else Japan generally doesn't, a little thing I like to call a Teamster's strike. Remember UPS, just before the turn of the millennium?

Noah D said...

Hopefully they are running at or near capacity.
If they are, sooner or later the shelves will fill back up and the prices will come back to somewhere near normal.


I dunno - we don't seem to be at the market-clearing price yet. Has the price for .223 (or any ammo) stabilized? Demand still seems to outstrip supply at current prices so they're going to keep rising.

I've got a feeling that we're never going to see the 'normal' of 4-5 years ago again, of $150/1K for .223 and such.

Then again, imagine how things might be different if we could import ammo from China.

staghounds said...

The old retail business is getting less profitable all the time.

Sears' catalogue started it a hundred and thirty years ago, and now the internets are like a crore of Sears catalogues.

Don't give retailers a hard time if they lack the widget you want. They know they are becoming showrooms for internet discounters, be civil to them for providing the service.

Enough "You're fired", and suddenly there won't be a store at all.

Except for guns and fresh food- those will always be cash and carry.

Brad K. said...

Tam,

You left out a couple of points in your analogy.

First is that asking a firm to increase output requires materials, which may be backordered. You covered that. The backordered material will likely cost more than the preplanned order. Add in transport costs above the expected.

And ammo makers especially must have a fun time hiring temp help. Training will be important to get a reliable product. And safety just isn't the same as a fill in sales associate.

Extra shipments to stores add extra transport costs - sometimes at higher cost.

And the credit crunch means that many companies can't afford to buy materials that they pay for when their product sells - if they now have to pay cash. This ratchets up costs in surprising ways.

Gas prices are rising again. And transport rates continue to climb. Some costs are increasing and will remain high, just over the weeks since Barack Hussein Obama was inaugurated. It seems like Bush was holding things together, while Obama has been dismantling things. My buddy is a black powder shooter, and from watching PBS he things the assault weapon ban won't affect AK style hardware, nor the use pledges/registration requirements will affect most gun owners. And I hadn't thought my Buddy was an idiot..

Andrew said...

I missed something. In theory this is a free market.
Consumers see their product as threatened, hence buy more.
Manufacturers are in in it for a profit, see they can make more, and do so.
Economics, not morals. Stick to your guns silly rabbits.

Anonymous said...

Ken, you said a lot and well, too. There's a huge difference between states in business inventory taxes, and the required annual inventory of goods that otherwise could have just remained stacked (in my family business it was dirt, crushed stone and coal, just to cite examples of what you might think didn't need to be picked up and put down once you had it) is what led to scientific bean-counting and its attendant evils. The annual tax on everything you own appears to be a Southern tradition, a kind of proto-rich bashing aimed at wastrel 18th-cent. trust slugs. It seemed totally foreign when it appeared in the north central states--it's funny what people can adapt to when there is no choice.

We could maybe get together and write a book about the comedy that was JIT in the USA. Strikes are just the big punchline; there are lots of follow-ups. At the "Japanese-style" auto factory campuses, union work rules apply. Most days that's bearable, but during a scheduled maintenance shutdown the fine print gets expensive. To test an assembly line, you assemble a car. It's not for sale, just a mule, but the contract says you have to pull in a skeleton crew for the whole line to legally operate it. Bothersome, sure, but then the big yocks cut in: if the union guys on that line work more than a half day during the shutdown, they have to pay their union dues for that whole 2- or 4-week period, when they should be on layoff. If the rulebook catches them just right, they can pay more for that day than they earn that month. Don't think the irony is lost on them. That's just one joke--I know some more.

Few nowadays remember when Japanese Japan-made goods were an existential threat. It turned out the Japanese never did put us to the wall; we did it to ourselves trying to copy the Japanese...

Amolothi said...

One thing that I missed looking through the comments is that the fact that the US is in two shooting wars and Uncle Sugar gets first grab at military calibers. No one is going to bitch and moan at the suppliers when they dump their surplus on the open market once these two calm down (if ever).

Tam said...

Between Olin, Remington-UMC, and Federal, the only one with any .mil contracts right now of which I am aware is Federal (Alliant Techsystems), which operates the Lake City arsenal.

perlhaqr said...

Amolothi makes a good point. Bring the troops home! Bring the troops home! ;)

Screw Afghanistan. (Actually, don't. It's dirty and you don't know where it's been.) I want cheap milsurp ammo back!

Oh, and Obama should totally try to improve our relations with China by ditching that import ban. ;) (I mean, as long as I'm fantasizing about cheap ammo again...)

New Jovian Thunderbolt said...

Is the federal rule forbidding the sale of surplus ammo still in effect? The whole Army could be disbanded and we wouldn't see round one if true. (I'm not sure how good my info is in the first place... I'd love to be wrong.)

Mikee said...

There is an advantage or two in buying some things after you have held them in your hands. A lack of dings, dents, and other damage can be seen on many things in a store, before purchase. Compare this with opening a box, which you already own, just tossed off the big brown truck. A repair or refund on a purchased item is harder to fix than selecting another example off the shelf before handing over the cash.

So there are advantages to retail purchases that internet sales will have to work to overcome.

Don't fire the retailers, just explain that you would buy an item off the shelf, if it was on the shelf. They might even order one for you to buy, on a verbal understanding that you would buy it after inspection. And they might be able to get it quicker than you. So ask.

Ken said...

We could maybe get together and write a book about the comedy that was JIT in the USA.

Anon@1:25 am: If you're serious, I might be interested in doing something along those lines, after I get my dissertation and a couple of other nagging details stapled to the floorboards. We should maybe talk.

Anonymous said...

Ken, you're doing just fine on your own. First I have to get back to where I can post here under my real other name. Then maybe we'll compare notes.

Crucis said...

Just-In-Time delivery got a big boost when the Fed and states started taxing on-hand inventory.

That killed stocking up. Any guess which political party came up with that bright idea? You get one guess and the name doesn't start with "R".

Tam said...

To be honest, I'd say that 70% of it is tax-related, and the other 30% is just good business practice.

You only have X square feet of display space and Y amount of dollars to stock it. The current Brownell's catalogue probably has more SKU's than the entire Sears wishbook of 1956. Have fun! ;)

José Giganté said...

So presumably at some point everyone gets their JIT together and we get a steady ammo supply at the current demand, right?

What it appears to me is that the supply end isn't nearly as ready scale supply to meet demand, this in a sense would be the reason for the continuation of a supply/demand ratio that drives up prices.

The $50,000 question is how long it takes for supply to catch up.

BTW, this is ammo and scary rifles and related parts.

José Giganté said...

OH, and Indiana no longer has an inventory tax.

Anonymous said...

State inventory tax had its big impact a generation ago, but it did usher in the jot-and-tittle definition of 'good business sense' (see MBA, above). Remember, JIT was cutting edge way back in the era of Excellent Companies, before the cheese got moved. But it was HUGE for air cargo operators big and small. Overnight car parts were like cocaine shipments, and kept Beech 18's with round motors up and kicking ice long past their airframes' sell-by dates.

More recently, it's internet sales that spoiled us big time. Like the death of the hardware store--people just pull up a page and guess at what they need. The all-knowing old (irascible fart) gent behind the counter is gone forever, which is fine if you're Billy Beck and know your product better than the vendor does, but has been Kiss'o'Death for tyros in many fields. The advent of the mini-waged "pimply-faced kid" in retail hastened this. People vaguely complain of foreign accents and vacuity on the help line, but faced with callow yoot and know-nothingness in person, we're all ready to say "you're fired."

mcthag said...

I'm more than willing to let the brick and mortar store order in the part I need. Even if I pay a bit more. Most of the time I don't, after shipping.

The problem I am encountering at gun shops is a flat refusal to order in parts.

My 1950 something vintage Remington 870 magazine spring gave up the ghost and I could not find a single local shop that would get me a replacement. Not a case of "we don't normally stock that but we can get it" but a case of "we don't carry parts and don't order them".

Grumble.

Assrot said...

Good point and very good explanation Tam. If you don't like the price, don't buy the ammo. I'm just sayin'.

Me I'm fairly well stocked up on factory ammo. I could use some more reloading supplies. I wonder if prices are going to come down any on them.

:-)

Joe