6 ms·

The biggest problem is everything is JIT so all supply chains using JIT (like all of them) get disrupted with as little as 10% variance from the media flow rate

The biggest problem is everything is JIT so all supply chains using JIT (like all of them) get disrupted with as little as 10% variance from the media flow rates. The only real answer is to relax the reasons why we have JIT: taxes on inventory which prevent accumulating safety stock inventory. Having larger safety stock would very quickly end this supply chain disruption and solve the chip shortage in few months rather than 6-24 months.

eloff 6y ago
There are taxes on inventory? How does that work? I thought it was just expensive to tie up a lot of capital on inventory.
- warlog 6y ago
  Me too(?)
- patmorgan23 6y ago
  Both are issues. In most states the property tax applies to all physical assets of the business. So they have to pay taxes on all their furniture, manufacturing equipment, computers, and yes any inventory they have sitting around.
  - throwaway2048 6y ago
    Property taxes are a rounding error compared to the value of even a small warehouse full of modestly priced consumer goods, talking far less than 1%, especially in industrial areas. It might be a factor in very low priced bulk goods like gravel or something, but I would be shocked even then.
  - jamiek88 6y ago
    Never heard of this is any US state or country I’ve worked in and that’s many. Can you supply an example ?
    - eloff 6y ago
      I haven't heard of it either, and it seems like it shouldn't be that way because individuals aren't taxed that way. But I'm no expert.
    - evancox100 6y ago
      "As shown in the map, nine states (Arkansas, Kentucky, Louisiana, Maryland, Mississippi, Oklahoma, Texas, Virginia, and West Virginia) fully tax business inventory, with five additional states (Alaska, Georgia, Massachusetts, Michigan, and Vermont) levying partial taxes on business inventory." https://taxfoundation.org/state-business-inventory-tax-2021/ https://taxfoundation.org/state-business-inventory-tax-2021/
      - eloff 6y ago
        Wow, that's insane. For a supposedly business friendly place a lot of US regulations (and this tax!) are seriously bad for business.
lazide 6y ago
Even if we fixed it today, it's unlikely to end this supply chain disruption - it will likely make it worse, as now that companies can't avoid facing this problem they have to get more stock in order to build a buffer. Making it easier/cheaper for them to build a BIGGER buffer just means more hoarding/supply chain shocks until everyone has enough of a buffer they stop trying to hoard/buy extra. The issue is that when you become brittle supply chain wise, the only real answer is to stock more/buy more individually - which crushes the supply chain even more. Either that, or co-ordinated (gov't level often) rationing, which has it's own problems.
sct202 6y ago
So kind of... operationally with JIT you're encouraging yourself and suppliers into figuring out how to lower batch sizes and lead times so that the supply chain can be more nibble and financially the biggest benefits to JIT are working capital reductions because you don't have to buy in giant increments.
hnews_account_1 6y ago
Authoritatively stating that inventory taxes are the reason for JIT won't make it the truth. Read a bit more for why Toyota actually came up with the concept. Inventory management is about efficiency. Even if entirely and completely untaxed, you want JIT to make sure your production is not over capacity and you aren't wasting money. Usual hackernews bullshit.
- R0b0t1 6y ago
  Inventory taxes inform the decisions of every business I have done work for. Without the taxes we would carry a few months of parts. But we can't. It's too expensive.
  - nitrogen 6y ago
    One of the things that turned me off of using Amazon for fulfillment when I was trying to run a barely ramen profitable hardware startup was that I might get stuck filing property taxes in a whole bunch of states. That and I was so broke that I could only afford to ship one box of inventory to one destination, and they insisted on splitting into multiple different warehouses.
  - hnews_account_1 6y ago
    This was not a black and white statement. You need to read better. I said JIT was not created for the sake of inventory taxes. JIT doesn't exist just for the sake of inventory taxes either. Why would someone tax small stocks of inventory enough to justify pure JIT? The bigger reason is to turnover your inventory faster and use cash more efficiently. The most basic of finance education would tell you about this. There are measures of this called inventory turnover, just as there are measures for turnover on many many things inside a company that gives an idea of how efficiently they use cash. I have never in my life seen a financial model on the face of the planet consider inventory taxes primarily because they're a non factor. Income taxes are a much bigger factor.
    - R0b0t1 6y ago
      I have read about the original case for JIT. Toyota and others, for example, do not hold the parts but bully their suppliers into holding them. They implicitly recognise the need for maintaining inventory but have forced someone else to bear the costs of maintaining it. HN is not usually biased against taxes which is the subtext I see in your original post. There are bad policies and unintended consequences to some taxes.
LatteLazy 6y ago
Since when are companies taxed on inventory? I thought JIT was about freeing up capital and avoiding waste (spoilage, out of date inventory etc)? It's hard to change that...
jeltz 6y ago
Inventory tax? Is that a common thing? I have never heard of it before and my country definitely does not have it but we still have plenty of JIT.
- jamiek88 6y ago
  No it isn’t common. Certainly not in USA, Europe or Middle East.

eloff 6y ago

There are taxes on inventory? How does that work? I thought it was just expensive to tie up a lot of capital on inventory.

warlog 6y ago
Me too(?)
patmorgan23 6y ago
Both are issues. In most states the property tax applies to all physical assets of the business. So they have to pay taxes on all their furniture, manufacturing equipment, computers, and yes any inventory they have sitting around.
- throwaway2048 6y ago
  Property taxes are a rounding error compared to the value of even a small warehouse full of modestly priced consumer goods, talking far less than 1%, especially in industrial areas. It might be a factor in very low priced bulk goods like gravel or something, but I would be shocked even then.
- jamiek88 6y ago
  Never heard of this is any US state or country I’ve worked in and that’s many. Can you supply an example ?
  - eloff 6y ago
    I haven't heard of it either, and it seems like it shouldn't be that way because individuals aren't taxed that way. But I'm no expert.
  - evancox100 6y ago
    "As shown in the map, nine states (Arkansas, Kentucky, Louisiana, Maryland, Mississippi, Oklahoma, Texas, Virginia, and West Virginia) fully tax business inventory, with five additional states (Alaska, Georgia, Massachusetts, Michigan, and Vermont) levying partial taxes on business inventory." https://taxfoundation.org/state-business-inventory-tax-2021/ https://taxfoundation.org/state-business-inventory-tax-2021/
    - eloff 6y ago
      Wow, that's insane. For a supposedly business friendly place a lot of US regulations (and this tax!) are seriously bad for business.

lazide 6y ago

Even if we fixed it today, it's unlikely to end this supply chain disruption - it will likely make it worse, as now that companies can't avoid facing this problem they have to get more stock in order to build a buffer. Making it easier/cheaper for them to build a BIGGER buffer just means more hoarding/supply chain shocks until everyone has enough of a buffer they stop trying to hoard/buy extra. The issue is that when you become brittle supply chain wise, the only real answer is to stock more/buy more individually - which crushes the supply chain even more. Either that, or co-ordinated (gov't level often) rationing, which has it's own problems.

sct202 6y ago

So kind of... operationally with JIT you're encouraging yourself and suppliers into figuring out how to lower batch sizes and lead times so that the supply chain can be more nibble and financially the biggest benefits to JIT are working capital reductions because you don't have to buy in giant increments.

hnews_account_1 6y ago

Authoritatively stating that inventory taxes are the reason for JIT won't make it the truth. Read a bit more for why Toyota actually came up with the concept. Inventory management is about efficiency. Even if entirely and completely untaxed, you want JIT to make sure your production is not over capacity and you aren't wasting money. Usual hackernews bullshit.

R0b0t1 6y ago
Inventory taxes inform the decisions of every business I have done work for. Without the taxes we would carry a few months of parts. But we can't. It's too expensive.
- nitrogen 6y ago
  One of the things that turned me off of using Amazon for fulfillment when I was trying to run a barely ramen profitable hardware startup was that I might get stuck filing property taxes in a whole bunch of states. That and I was so broke that I could only afford to ship one box of inventory to one destination, and they insisted on splitting into multiple different warehouses.
- hnews_account_1 6y ago
  This was not a black and white statement. You need to read better. I said JIT was not created for the sake of inventory taxes. JIT doesn't exist just for the sake of inventory taxes either. Why would someone tax small stocks of inventory enough to justify pure JIT? The bigger reason is to turnover your inventory faster and use cash more efficiently. The most basic of finance education would tell you about this. There are measures of this called inventory turnover, just as there are measures for turnover on many many things inside a company that gives an idea of how efficiently they use cash. I have never in my life seen a financial model on the face of the planet consider inventory taxes primarily because they're a non factor. Income taxes are a much bigger factor.
  - R0b0t1 6y ago
    I have read about the original case for JIT. Toyota and others, for example, do not hold the parts but bully their suppliers into holding them. They implicitly recognise the need for maintaining inventory but have forced someone else to bear the costs of maintaining it. HN is not usually biased against taxes which is the subtext I see in your original post. There are bad policies and unintended consequences to some taxes.

LatteLazy 6y ago

Since when are companies taxed on inventory? I thought JIT was about freeing up capital and avoiding waste (spoilage, out of date inventory etc)? It's hard to change that...

jeltz 6y ago

Inventory tax? Is that a common thing? I have never heard of it before and my country definitely does not have it but we still have plenty of JIT.

jamiek88 6y ago
No it isn’t common. Certainly not in USA, Europe or Middle East.