14 April 2024, 00:25
By Bill McLoughlin Dec 20, 2021

The downside of upsizing

Tales of rampant growth and investment to meet pandemic-fuelled demand may be heartening to hear, but what happens when that demand ebbs? Bill McLoughlin, editor-in-chief of US trade magazine Furniture Today, suggests that those upsizing should consider what a reversal might look like …

We all know it’s coming. Sooner or later the supply and demand curves will again intersect and, at some undetermined point after that, supply will begin to outstrip demand. The critical question is when and, as importantly, how fast. That’s the $64b question. 

Even now – nearly two years into a global supply chain disruption that dramatically increased leadtimes, ballooned backlogs and raised freight costs to unprecedented levels – companies are still investing in people, facilities and equipment to keep pace with demand. 

Despite signs of slowing and an acknowledgement that dollar growth is dramatically outpacing unit growth, the home, and all that fills it, continues to be a focal point of consumer spending. And the effort to keep pace with that continues to drive investment spending in plant, people and equipment to keep pace. 

So what happens when the goods are flowing normally and the backlogs are gone? What happens when demand dips? I hesitate to use the phrase “returns to normal” because after two-plus years of global disruption, who knows what normal looks like? Comparing to 2019 only works for so long before changing demographics, market conditions and cost structures render those comparisons moot. 

However it’s measured, when demand slows, the industry could be a lot like a game of musical chairs – not everyone is going to have a seat. 

Figuring out how and when to take your foot off the gas, how and when to reduce orders and stop hiring, or (audible gasp) begin downsizing people and facilities is going to be as important to companies’ survival in the post-pandemic marketplace as getting goods is right now. 

The just-in-time inventory model has been gut-punched by the pandemic, and for many the short-term solution has become more warehouses and deeper inventory (anyone out there sitting on a supply of left and right arms but no centres for their sectionals knows what I mean). 

So what happens when things start flowing again? Is just-in-time just in the past? Is deep inventory the new normal? And what happens when orders slow to accommodate the fact that demand is being sated? Does the business level at this new higher plateau and support new, higher-capacity infrastructure, or will this period of oversized demand be followed by one of oversized contraction? 

I don’t know the answer to these questions. If I did, I’d be writing an ad for consulting services, not a column flagging an upcoming fork in the road. What seems likely, however, is that the pandemics’ outsized impact, accelerating and exacerbating conditions already in existence at its outset, is likely to be just as outsized on conditions as we emerge. 

Even as companies continue investing to work around current challenges, it might also be worthwhile to give some thought and planning to what flexing down is going to look like.

In the meantime, if anyone has a crystal ball they’re willing to share, give me a call.

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