EXECUTIVE DIRECTOR'S MESSAGE Ken Fisher, ONLA Executive Director, ken@onla.org
What we do together matters when it comes to growing and protecting the future of our industry in Ohio and beyond. All indications point to another six months of favorable economic and market conditions for most segments of our industry. There are more vaccines rolling out daily, businesses are operating safely, and hopeful signs of curves flattening are on the horizon that will lead to a return to “normalcy” in our society. But it will likely take another six months to get there. Work from home and school from home should provide a lift for our home improvement segment for a few more quarters. Let the 2021 landscaping and gardening season begin! But…I reminded of lessons from The Beer Game. The Beer Game is a supply chain simulation developed at MIT in the 1960s. It features a beer retailer, wholesale distributor, and brewery all trying to coordinate their business to optimize their revenue and profits. In the game, the ordinary order-ship-produce cycle of a consumer good is outlined, complete with order process, lead times, and who takes possession of the product at each step, among others. To simulate the real world, there’s a four-week lag between the time the retailer orders and receives the beer from the wholesaler, and a four-week lag between the time the wholesaler orders and receives the beer from the brewery. The brewery takes two weeks to brew the beer upon receipt of order from the wholesaler. In the game, a popular brew called Lover’s Beer has steady retail sales of four cases a week, so the retailer has 12 cases on hand to account for the reorder process. Out of the blue, the product experiences a sales spike and doubles to sell eight cases in a week. It seems there’s no apparent reason—no promotions, advertising, etc. (by week four you discover there is a new music video featuring Lover’s Beer!). When this happens a second time, the retailer decides to double his next order. It too sells out. So, he increases his order again and so on. Quickly the beer becomes backordered. Wanting to meet consumer demand, the retailer keeps weekly orders in the system in hopes of getting product first when the back order resolves. The wholesale distributor ramps up his orders to the brewery who in turn starts producing more and more Lover’s Beer. The game is generally played through 24 weeks in which time the excess and constraints of the system become amplified. And of course, about halfway through the game, demand for Lover’s Beer plummets as the music video runs its course. onla.org
I’ll jump to the punch line: Consumer and market exuberance, if abruptly changed or stopped, can leave someone in the supply chain “holding the beer”. In the Beer Game, our retailer, and each of his competitors who sell Lover’s Beer, doubled their orders to meet the demands of their customers. The wholesale distributor did her job to keep the product moving smoothly through the system to fill the growing backlog of orders. And the small brewery, sensing it had finally hit it “big”, expanded production to fill the rapid escalation of orders. Ultimately, the supply ends up with over 220 truckloads of Lover’s Beer flowing through the supply chain without market demand. Fingers get pointed as to who caused the problem. This is a complete oversimplification of the Beer Game and the many lessons to be learned. But some health experts, including Bill Gates, have projected that the pandemic may subside as quickly as it started. When we reach population immunity it’s possible that consumer discretionary dollars may quickly migrate away from home projects and back to eating out, travel, and other consumer experiences. It could happen with little warning. I’m not sounding an alarm or trying to put a damper on the season, but keeping a careful eye on your inventory, order book, and cash flow will be prudent if the “music suddenly stops”. As we move boldly into our 2021 season, I want to thank you for your membership and support of ONLA. We will continue to work hard to provide the programming, advocacy, and employee development opportunities to help your business grow and succeed. Your continued membership and participation in ONLA events will encourage others to join. Help us get the word out: the industry benefits from a growing ONLA membership. Because “what we do together matters."B
Ken can be contacted at ken@onla.org
March/April 2021
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