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The shockwave of excess inventory and capacity is coming. One of our suppliers in the automation space told us they experienced over 70% growth in orders last y

The shockwave of excess inventory and capacity is coming. One of our suppliers in the automation space told us they experienced over 70% growth in orders last year (compared to 2019 levels). This can’t be explained by organic growth; only by their customers increasing stock levels. Once demand starts dropping (we are in recession territory after all), all this stock is going to cause a mess. Word is some prominent semiconductor suppliers (think TI, ST) saw this coming and refused to go crazy on new capacity (which takes years and billions), instead waiting for the demand to subside; but this is 3rd hand info I got.

citrin_ru 4y ago
> Once demand starts dropping, (we are in recession territory after all), all this stock is going to cause a mess. What is an alternative to stockpiling? JIT logistics still haven't recovered after COVID. If we talking about cars many people still have to wait months for the model they want. Used car prices are still high too. IMHO demand will not go off the cliff unless prices will rise (much) faster than median income.
- flyinglizard 4y ago
  There’s no alternative, other than controlling more of your supply chain in house where you can. In the industrial segment, the implications of not having products to supply are devastating. Im sure ST and TI lost many new designs and were designed out of many other designs over the past two years. With five to ten year design cycles for many products, this will have long term effects.
  - techdragon 4y ago
    This feels from the outside as an observer, like a badly tuned PID control. The COVID lockdowns and Suez blockage cratered supply side, so they compensate, then the upstream begins to catch up, then the wheels begin to come off the economy right before we get to the peak of the recovery, which will most likely result in an overcompensated response as everyone tries to survive in the downturn by selling stockpiles in secondary markets or back to suppliers, but the glut of supply will push components down while the companies simultaneously aim to reduce overhead by turning back to a JIT strategy, while the system is already strained by current circumstances forces them to react as quickly as they can, so we get an overcorrection… People are getting (while annoyed by it) kinda used to waiting for big ticket stuff they want to buy, I’ve been waiting weeks for a laptop from Apple who are well know for being a very logistics aware company. There’s waiting in the auto industry, the housing industry, lots of others… “what can you do about it, everyone is struggling”, etc… So we might start to see an overcorrection where companies begin to rely on this, going beyond “predicted JIT” where they try to only order as much as needed to potentially a “as needed JIT” where they don’t even order the necessary (or most expensive) parts until someone has ordered the item that requires them. Which would likely add further instability as upstream producers get exposed to noisy consumer market supply chain fluctuations. I’m not an expert but it seems like a plausible macroeconomic scenario. I hope we can kinda get back to “normalcy” but I’m really not holding out much hope these days.

citrin_ru 4y ago

> Once demand starts dropping, (we are in recession territory after all), all this stock is going to cause a mess. What is an alternative to stockpiling? JIT logistics still haven't recovered after COVID. If we talking about cars many people still have to wait months for the model they want. Used car prices are still high too. IMHO demand will not go off the cliff unless prices will rise (much) faster than median income.

flyinglizard 4y ago
There’s no alternative, other than controlling more of your supply chain in house where you can. In the industrial segment, the implications of not having products to supply are devastating. Im sure ST and TI lost many new designs and were designed out of many other designs over the past two years. With five to ten year design cycles for many products, this will have long term effects.
- techdragon 4y ago
  This feels from the outside as an observer, like a badly tuned PID control. The COVID lockdowns and Suez blockage cratered supply side, so they compensate, then the upstream begins to catch up, then the wheels begin to come off the economy right before we get to the peak of the recovery, which will most likely result in an overcompensated response as everyone tries to survive in the downturn by selling stockpiles in secondary markets or back to suppliers, but the glut of supply will push components down while the companies simultaneously aim to reduce overhead by turning back to a JIT strategy, while the system is already strained by current circumstances forces them to react as quickly as they can, so we get an overcorrection… People are getting (while annoyed by it) kinda used to waiting for big ticket stuff they want to buy, I’ve been waiting weeks for a laptop from Apple who are well know for being a very logistics aware company. There’s waiting in the auto industry, the housing industry, lots of others… “what can you do about it, everyone is struggling”, etc… So we might start to see an overcorrection where companies begin to rely on this, going beyond “predicted JIT” where they try to only order as much as needed to potentially a “as needed JIT” where they don’t even order the necessary (or most expensive) parts until someone has ordered the item that requires them. Which would likely add further instability as upstream producers get exposed to noisy consumer market supply chain fluctuations. I’m not an expert but it seems like a plausible macroeconomic scenario. I hope we can kinda get back to “normalcy” but I’m really not holding out much hope these days.