U.S. toymaker seems past port logjams to the chance of gluts By Reuters

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© Reuters. FILE PHOTO: Employees work on the production line of the American baby products and toy manufacturer Kids2 in a factory in Jiujiang, Jiangxi Province, China, June 22, 2021. REUTERS / Gabriel Crossley / File Photo

By Timothy Aeppel

(Reuters) – Aside from the supply chain headaches everyone is battling – from congested ports to empty store shelves – Ryan Gunnigle is focused on the potential for the opposite problem: flooding.

“Customers are throwing crazy orders right now, so it’s hard to determine actual demand,” said the general manager of Kids2, the Atlanta-based toy company best known for making Baby Einstein and other baby-focused brands. Business always booms around the holidays, but this year the pandemic has been turned on its head.

A central danger in the current environment is that companies order too many goods, especially in the run-up to Christmas, as they strive to process orders, which could quickly lead to a pile of unsold electronic baby books and high chairs as soon as the crisis subsides.

Some economists are also seeing signs of a demand peak that will ease inflationary pressures in the coming months.

Nancy Lazar, director of economic research at Cornerstone Macro, said in a seminar Friday that spending on furniture and computers – which exploded during the pandemic – has already cooled and that demand for many consumer products will decline in 2022 and demand will come When the blockages in the supply chain wear off, “both of them push prices down,” she said.

Global producers all face similar risks.

The natural response from retailers and other businesses that rely on remote factories – including Kids2, which manufactures in China – is to increase orders because they fear that they will run out of goods before their stocks can be replenished. This exacerbates the problem as the rush creates an even bigger surge in orders in factories far away, a process known as the bullwhip effect. The pandemic and an energy crisis in China make the situation particularly tense.

Gunnigle said he saw signs that the supply situation is easing somewhat, including a slight decrease in the cost of booking shipping containers and fewer “empty trips” if one of their cargo boxes misses its place on a ship from China.

“We’re starting to see things flow a little easier,” he said.

Nevertheless, the curve balls keep coming, which makes planning difficult with so much uncertainty.

Think of the power shortage that is stirring up Chinese factories in some regions of this country. For example, Gunnigle has just learned that the Chinese factory that makes baby teething rings for Kids2 has stopped production until the energy problem is resolved. This manufacturer uses a type of plastic whose cost has risen sharply, which, along with rising energy prices, makes production uneconomical, he said.

‘PADDED’ LEAD TIMES

Gunnigle is in a good position to assess the risk of too many piles of goods. While many of its competitors have set up shop in other countries, it has doubled in size on China – it recently opened the first phase of a factory complex on the banks of the Yangtze River in central China for $ 20 million.

This factory, along with a joint venture plant, produces half of the goods the company sells worldwide – the rest comes from other Chinese factories. “I think our response time was much better than our competitors’ because of it,” he said, noting that Toys2 was two and a half months longer than expected from China as early as May – in addition to the normal 70 day average.

“We’ve really padded our lead times,” he said. “Not just in manufacturing – but in our estimates of the time it takes to get to the port, get things on boats, time to unload the boats.”

At the beginning of the year, the bottleneck was in China. His own factory and a close relationship with his joint venture producer allowed him to quickly shift production to producing things that were facing the greatest bottlenecks. The company also prioritized what goods it put in its containers to maximize shipping of the most requested items.

The problem has now shifted to the United States and is centered in Southern California, where more than 100 ships waited to enter the ports of Los Angeles and Long Beach earlier this month.

That will change again in the coming months, said Gunnigle, who said his operations team is now concentrating on bottlenecks that will form in China at the end of this year and beginning of next year, “because containers on the west and east coasts are not be returned to China quickly enough to replenish goods coming from China to support demand in the first quarter. “

The company’s early work is one reason why it keeps a close eye on the risk of oversupply. “There’s a lot of inventory in the pipeline,” he said. “I just want to make sure we don’t get stuck too much.”

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