A lesson about supply/demand and technology

I read an interesting article in The Economist that I found particularly interesting. I’m not sure if I’m turning into an economics nerd, but I think it made a great connection between manufacturing and inventory technology with the “Great Moderation” (more on this in a sec).

Since I’m not an economist of any sort, the concept of the Great Moderation was new to me, although it seems to be part of the economic vernacular. It refers to the period of greater stability in the world economy that has developed since the early 80s. Basically, world markets have been less volatile and seemingly better able to recover from crises than in the past. The article is primarily about what caused this change and whether it is sustainable (as opposed to just a long streak of good luck).

What I found interesting was a point about inventory cycles (which I think is how long it takes to turn over a company’s inventory). The article suggests that due to a generally improved ability to manage inventory, companies are able to scale production to demand more effectively, minimizing large excess or severe understock. This in turn, decreases the volatility of the market. Here’s the punchline:

That something so workaday as supply-chain management could have so marked an effect might seem a dull conclusion. But dullness is a virtue, because technological improvement is irreversible. This means the greater stability it provides is likely to be permanent.

Pretty incredible that something as boring as supply chain management can impact the global economy in such a large way. I guess that is how Wal-Mart almost took over the world.

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