Monday, September 20, 2010

The temporary economy

This NPR story on retailers hiring temporary workers reminded me of a conversation I had yesterday with the head of a big sourcing company based here in Hong Kong. The executive mentioned how the Great Recession had accelerated the trend towards retailers shunning inventory.

(To his credit, wise Liam Casey of PCH International has been telling me about this for years. I suspect that the electronics industry is way ahead on this no-inventory rule.)

Retailers are asking vendors and factories to produce as close as possible to the moment the products will be needed in stores, or to hold the inventory themselves, if they wouldn't mind, until then. Order quantities are getting smaller, product updates more frequent. (See my Bloomberg column for more on this.)

The NPR story above points out that retailers are waiting until the last possible moment to hire additional staff for the Christmas season, which accounts for 40-50% of retail sales in the US.

And this NPR story talks about Harley-Davidson's attempts to keep costs down and keep manufacturing in America by making its workforce as flexible as possible. Owners of factories in southern China, who protested vigorously Beijing's attempts to make firing workers more costly in the 2008 Labor Contract Law, already operate precisely as Harley-Davidson would like, staffing up and down in response to order volumes.

It all makes me feel like we are living in a temporary economy, where goods and labor are applied only in bursts, in response to market needs. One could argue that companies devastated in the downturn have rightly become more conservative, or that Wall Street's demands for quarterly improvements have goaded companies in this direction, or even that this is simply an inevitable extension of the Japanese just-in-time model. Or that globalization, or the arrival of lots of fresh-faced Chinese workers on the global labor market, drove us to this point. What seems clear is that, for a certain and likely growing percentage of people in America, China and elsewhere, the temporary economy is the new normal.

It does make me wonder where it leaves us economically in the long run. China, with its migrant workforce, has been perfectly suited to the temporary economy. Maybe this is part of the global contribution of Chinese labor - that it has given the world the flexibility to create temporary economies.

In the US, the picture is more muddied. In the long run, the economy should be more efficient, and in theory, those people who are working seasonally are free to do other jobs when they aren't making Harleys or selling e-book readers to put under the Christmas tree.

But even if the economy this ultimately creates is more efficient, it does make me wonder about our ability to create good temporary jobs, and whether those jobs can pay people enough to maintain their standard of living.


Renaud said...

"China, with its migrant workforce, has been perfectly suited to the temporary economy"
>> I would say the opposite: China has pushed retailers to deal with longer production cycles in exchange for much lower prices. Now that everybody buys from China, they are simply trying to get back to shorter cycles as a source of differentiation (and also to lower their total costs).

Alexandra Harney said...

Interesting point, Renaud. I'd have to dig through my cards to find someone who could comment on what it was like to source from America or Mexico back in the day and compare lead times. But most people I talk to tell me that production cycles have gotten shorter, that lead times have gone from 90 to 45 days, from 45 days to 30, etc. Do you mean to say that when sweaters were still made in the US years and years ago, the lead times were shorter than 45 or 30 days?

Renaud said...

If we take the example of sweaters, the typical China production cycle is one good month (dying the fabric, cutting-sewing-trimming-packing-shipping). Add to this the development time if it's a new style (easily 1 month to approve sizes, colors...) and another month if it's shipped out by sea.
When sweaters were sewn in the US with American fabric, I guess (but I can't be sure about it) it was usually faster.
Add to this the fact that the sweaters made in the US today are certainly sewn faster than they were 20 years ago (see the 1st paragraph of this article:
My point is that China is making some progress, but that producing locally is usually faster than in China.