The Bullwhip Supply Chain is Beginning

Wednesday’s Wall Street Journal has a noteworthy front-page article about the “bullwhip” effect, as it is starting to play out in businesses as the economy recuperates. What’s the bullwhip effect? The WSJ article explains:

“This phenomenon occurs when companies significantly cut or add inventories. Economists call it a bullwhip because even small increases in demand can cause a big snap in the need for parts and materials further down the supply chain.”

For more details about “the bullwhip effect” — and what causes it — see the classic 1997 MIT Sloan Management Review article on the topic, “The Bullwhip Effect in Supply Chains.”

In that article, Hau L. Lee, V. Padmanabhan and Seungjin Whang argue that the bullwhip effect results from rational behavior by companies within the existing structure of supply chains. As a result, companies that want to mitigate the impact of the bullwhip effect need to think about modifying structures and processes within the supply chain – in order to change incentives. The authors explain four major causes of the bullwhip effect — as well as ways to counteract it.

2nd straight GDP increase

From the BEA report this week:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.7 percent in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.
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The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in PCE.
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Real personal consumption expenditures increased 2.0 percent in the fourth quarter, compared with an increase of 2.8 percent in the third.
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Real nonresidential fixed investment increased 2.9 percent in the fourth quarter, in contrast to a decrease of 5.9 percent in the third. Nonresidential structures decreased 15.4 percent, compared with a decrease of 18.4 percent. Equipment and software increased 13.3 percent, compared with an increase of 1.5 percent. Real residential fixed investment increased 5.7 percent, compared with an increase of 18.9 percent.

Any analysis of the Q4 GDP report has to start with the change in private inventories. This change contributed a majority of the increase in GDP, and annualized Q4 GDP growth would have been 2.3% without the transitory increase from inventory changes. Unfortunately - although expected - the two leading sectors, residential investment (RI) and personal consumption expenditures (PCE), both slowed in Q4. PCE slowed from 2.8% annualized growth in Q3 to 2.0% in Q4. RI slowed from 18.9% in Q3 to just 5.7% in Q4. It is not a surprise that both key leading sectors are struggling. The personal saving rate increased slightly to 4.6% in Q4, and I expect the saving rate to increase over the next year or two to around 8% - as households repair their balance sheets - and that will be a constant drag on PCE. And there is no reason to expect a sustained increase in RI until the excess housing inventory is absorbed. In fact, based on recent reports of housing starts and new home sales, there is a good chance that residential investment will be a slight drag on GDP in Q1 2010. (Source: Calculated Risk)

Most economists reaction: It's too soon to declare recovery accomplished. Click here.
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Living beyond our means

The federal budget picture, including a quote from the CBO Director:
For more of the Director's comments, click here.
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Bus trip to "Pack Trials" planned

The January 29 deadline to register for a Greenhouse Grower’s trip to this year’s California Spring Trials (this used to be called the Pack Trials) is fast approaching.

An intense, educational and entertaining trip is planned to several of the key Spring Trial locations from April 10 -12, 2010. The trip is designed specifically for greenhouse growers and other floriculture professionals.

The trip itinerary is jam-packed; the days begin early and continue at a fast pace late into the evening. Attendees should plan to arrive on Friday, April 9 and will stay at a designated hotel near the San Jose Airport. The journey begins at 7 a.m. on Saturday, April 10, when the bus departs from the hotel. That first day, the group will visit Pacific Plug & Liner and Agrexco in Watsonville, followed by Syngenta Flowers and Goldsmith Seeds in Gilroy, Speedling in San Juan Batista (along with exhibitors HEM Genetics, GreeNex USA, Schoneveld Twello, Thomson and Morgan, MasterTag, and Plant Source International and finally ending the day at American Takii in Salinas, with an optional stop at Matsui Nursery. Participants will stay in Salinas on Saturday night.

On Sunday, April 11, the day will begin with a bus drive to San Luis Obispo, where the first stop will be Dummen USA. After a short drive to Arroyo Grande, the group will visit Greenheart Farms to celebrate their 30th anniversary. The last stop of the day will be in Santa Barbara where the participants will visit Jiffy Products along with their exhibitors Northern Innovators Inc., Skagit Gardens, Florist de Kwakel, and GGG-international.

Monday, April 12, will be a busy day beginning with the bus departing at 7 a.m. and driving to Carpinteria to visit PlantHaven, HIP Labels, and Westflowers. Following this stop, the group will arrive at Santa Paula to visit Ball Horticultural Co. along with Ball FloraPlant, Selecta First Class, PanAmerican Seed Co., and Kieft Seeds. Lunch will be hosted by Ball. In the afternoon, Green Fuse Botanicals will be visited along with GroLink in Oxnard. The last stop of the day will be in Somis, CA to visit Suntory. Participants will spend Monday night at a hotel in West Hollywood, CA. This hotel is conveniently located midway between the Los Angeles (LAX) airport and the Burbank Airport. There is a shuttle service and taxi service to both of these airports from the hotel.

This package trip includes the cost of first class hotel accommodations for four nights from April 9-12, bus transportation from the first day to on the last day, lunches for 3 days, and experienced guides. Participants need to arrange their own transportation into San Jose on April 9 and out of West Hollywood on April 12, and cover their own dinner costs. A travel agency is available to assist with plane reservations (go to the website listed below). The cost of the trip will be $450 per person in a double room or $720 per person for a single room. These rates are based on 47 participants and will be adjusted slightly if minimum capacity is not met. The trip is subject to change.

**Space is limited** Register by January 29, 2010 to reserve a seat on this trip. For on-line reservation, go to www.concepts.us.com and click on Event Registration at the bottom left of the site. Be sure to go to the site labeled: Greenhouse Growers Spring Trials 2010. If you have questions, contact Dr. Mark Bridgen at mpb27@cornell.edu or at 631-727-3595.

This group trip to the 2010 California Spring Pack Trials is a new, one-of-a-kind venture for growers! All greenhouse growers and floriculture professionals are invited to attend. It is an opportunity to meet fellow growers, breeders, and other plant company representatives to share ideas, update your understanding of what's happening in our industry, and travel with trained professionals.

Boost Your Bottom Line Webinar Series

Get a better handle on your bottom line profitability. Register today for a webinar series that I am co-presenting along with Dr. Paul Thomas (University of Georgia) in the latest installment in the Greenhouse Grower webinar series.

This 4-part series, Using Benchmarking To Track Your Recovery Performance, is designed to help you make more informed managerial decisions in the aftermath of an economic downturn that literally turned markets upside down. In this hypercompetitive market environment, the competitive advantages you enjoy today may vanish with breathtaking speed and frequency.

By learning how to use a benchmark analysis, growers are empowered to investigate and implement changes to their business with better understanding and documentation of the actual profits and benefits to be gained.

In this webinar, we will set the stage for the webinar series by demonstrating how to measure the profitability associated with various cultural and management practices you may be planning to put in place for the economic recovery.

Click here to go to the registration page.

After registering you will receive a confirmation email containing information about joining the webinar.

The view from 30,000 feet

Click here to read my latest article published in GrowerTalks regarding the stage being set for 2010.

In the aftermath of the Great Recession

Today's column by Robert Samuelson emphasizes the role of trade and entrepreneurs in shaping the economic growth of the next decade. He specifically mentions florists as an example. See below.

One insistent question at the start of a new decade involves the lingering effects of the old: What scars will the Great Recession leave? We are already seeing some. Americans are moving less than at any time since World War II, reports demographer William Frey of the Brookings Institution. People are tied to existing homes, can't get loans for new ones and won't move without job commitments, Frey says. Only 1.6 percent of Americans are now moving across state lines, half the rate of a decade ago.

With a grim job market, the young also seem more cautious. A new survey by Fidelity Investments found that a quarter of workers ages 22 to 33 want to stay with their present employer until retirement; in 2008, that was only 14 percent. John Irons of the liberal Economic Policy Institute worries that many young Americans, lacking tuition funding, will delay or abandon attending college, lowering their long-term earning power.

So the Great Recession's nastiest scar could be an era of economic frustration, characterized by slower growth and contentious competition for scarce resources. Stunned by huge wealth losses in stocks and real estate, Americans save more and spend less. Businesses suffer from weak demand. Hiring remains sluggish. Worse, the slowdown coincides with an aging population, which could compound the effect. In 2020, the projected number of Americans 55 and older will reach almost 100 million, 29 percent of the total population. That's up from 59 million, or 21 percent, in 2000.

"Younger people . . . tend to be more innovative, more willing to take risks, more willing to do things differently," Stanford University economist Paul Romer says in an interview for the book "From Poverty to Prosperity" by Arnold Kling and Nick Schulz. As noted, today's turmoil could make even the young more risk-averse. Or older and middle-aged people could increasingly dominate corporate hierarchies and university research grants, as Romer worries. An aging society could become a stand-pat society, protective of the status quo and resistant to change.

Against this glum prospect, the standard rebuttal evokes history. The U.S. economy is amazingly resilient, the argument goes. It has been a consistent job creator: 21 million in the 1970s, 18 million in the 1980s, 17 million in the 1990s, 12 million in the past decade through 2007. (Lower gains reflect slower labor-force growth, not less dynamism.)

A "can-do" culture -- combining intense ambition with a flexibility to adapt and an instinct for innovation -- ensures that the economy will ultimately rebound strongly. The harsh recession may have actually improved the long-term outlook by purging high-cost firms and forcing efficiencies. Productivity (output per hour worked) has risen 4 percent in the past year. Profits are already up 21 percent from their low; surviving firms will soon expand.

Which vision will prevail?

The answer may hinge on two things: trade and entrepreneurship. Most economists see stronger exports as a substitute for weaker consumer spending. Unfortunately, that depends heavily on economic growth and trade policies abroad. By contrast, entrepreneurship is a sleeper issue that depends on what Americans do.

If you doubt its importance, consider this: All net job creation from 1980 to 2005 came from firms that were five years old or less, according to a study by economists John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau. In any one year, that may not be true; but over time, mature firms lose more jobs than they create. "It's not small firms but young firms that count," says economist Robert Litan of the Kauffman Foundation, which sponsored the study.

If Americans don't continue to create firms -- not just high-tech start-ups such as Facebook but construction companies, florists, restaurants, dry cleaners, engineering firms -- the economy may languish. Beginning a business is a risky, exhausting, chaotic process. Every year, there are roughly 500,000 to 600,000 company "births" and almost as many "deaths." Half of new firms don't make it to year five, says Litan.

Some harbingers of growth look unpromising. In 2009, disbursements by "venture capital" firms -- investors in start-ups -- to first-time recipients hit an all-time low since statistics were begun in 1995. True, VCs support only a tiny fraction of new firms, mostly high-tech start-ups. But "angel investors" -- friends and family of entrepreneurs who support many more -- have also suffered huge losses in stocks and homes. They, too, have less to invest.

There's a warning here for the Obama administration: Complex regulations or high taxes may discourage start-ups and job creation. As for broader questions, the answers may remain murky for years. Has the mix of economic trauma and aging made us prudent -- or merely fearful? Has economic resilience survived -- or given way to a stand-pat society?

Source: Click here

U.S. population over 308 million

From the WSJ -- As the first decade of the 21st century comes to a close, the Census Bureau projects that on Jan. 1, 2010, the total U.S. population will be 308,400,408. This would represent an increase of 2,606,181, or 0.9%, from New Year’s Day 2009. In January 2010, one birth is expected to occur every eight seconds in the United States and one death every 12 seconds. Meanwhile, net international migration is expected to add one person every 37 seconds to the U.S. population in January 2010. Combined with births and deaths, that means an increase in the total U.S. population of one person every 14 seconds. Close to the end of the new decade, in July 2019, the Census Bureau projects the U.S. head count will have risen to 338,190,000.

That's a lot of potential green industry consumers.