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2011

Although it sounds like the set-up for a joke, I ask the question in all seriousness. The answer, in case you missed it over Memorial Day weekend, is that one of the world’s largest defense contractors known for its missiles, jets and other major weapons systems, and a broadcaster known for its children’s shows, news programs and documentaries both were the subject of recent cyber attacks.

 

Lockheed Martin announced last week that it had detected a “significant and tenacious” attack on its information systems network. The company’s information security team quickly detected the attack, and took subsequent steps to protect the network and increase IT security. The result, according to the company’s statement, is that its systems remain secure; no customer, program or employee personal data has been compromised.

 

A recent Associated Press story also notes that the attack demonstrates that some hackers, including many working for foreign governments, set their sights on information that has the potential to be far more devastating than accessing credit cards. Analysts said the latest attack would likely spur rival defense contractors such as Northrop Grumman, Raytheon, General Dynamics and Boeing to take additional steps to safeguard their systems.

 

“I guarantee you every major defense contractor is on double alert….watching what’s going on and making sure they’re not the next to fall victim,” said Josh Shaul, chief technology officer at database security software supplier Application Security, in the AP story. 

 

The Wall Street Journal also reports that over the weekend, the website for the PBS show “NewsHour” was altered by hackers to include a fake article. The hackers also posted login information that stations and other entities use to access PBS sites.

 

What The Journal article interestingly points out is the connection between the two attacks. That is, in the past, hackers generally had targeted companies that stored financial data or had classified government information. Today, however, they have expanded their sights to include corporate secrets or information that can lead to valuable data in the future. The end result, says Alex Stamos, chief technology officer at security firm iSEC Partners in the article, is that almost every company is now a target.

 

Perhaps more troubling, is that so-called hactivists—who seek revenge on companies for perceived slights—also have moved from simply knocking websites off-line, to stealing data. And as Stamos says in the article, there are enough people out there who aren’t worried about the consequences that they are willing to wage a sustained campaign against a global company.

 

There are two points that really stand out in these events for me. The first, of course, is that IT security may well have become a larger threat than many companies believe it to be—especially given the nature of some of the recent attacks.

 

The second point, is to wonder if these types of attacks are seen as supply chain disruptions. What are the ramifications for your company if it was the subject of one of these cyber attacks? Conversely, what if one of your key suppliers was the victim of a cyber attack? What type of impact would that have on your business and the supply chain? Do you have a contingency plan in place to cover the possibility?

A recent trip to the hardware store reminded me of a problem that can plague several different industries—inventory stock-outs on a store shelf. In my case, I was looking for a specific brand of lawnmower sparkplug, and while the store does carry the brand as well as the model number of sparkplug I needed, there weren’t any on the shelf. That left me with the same question we’ve all faced at one time or another: Do I now buy a different brand or do I go to a different store? Given the current price of gasoline, combined with the facts that I was in a hurry and am not particularly brand loyal when it comes to sparkplugs, I bought the competitor’s offering.

 

I was reminded of that trip to the hardware store by a SupplyChainDigest article I saw yesterday, noting that consumer goods manufacturers and retailers alike have focused on reducing inventories and out-of-stocks on store shelves through various initiatives for quite some time--with somewhat mixed results. It also referenced a 2007 study (based on funding from Procter & Gamble) by Dr. Thomas Gruen of the University of Colorado and Dr. Daniel Corsten of the IE Business School Madrid, which estimated that manufacturers lose approximately $100 billion in sales annually due to out-of-stocks at the shelf.

 

Solving the out-of-stock challenge then can offer significant tangible results, especially for companies able to reach new levels of in-stock performance before their competitors. The article cites an example from Remzi Ural, a supply chain lead in IBM's global consumer packaged goods practice. That is, one beverage company IBM recently worked with was able to increase its sales by 12.3 million cases by significantly reducing its stock-outs.

 

The problem is that achieving the right network inventory level is difficult enough, and furthermore, it’s compounded by a number of variable factors that include forecast error and demand variability, lead time and lead time variability, order and production cycles, transit times and transit variability, and order minimums and increments, as Ural explains. Add to all that the increasingly complex nature of today’s supply chains and the challenge becomes more vexing.

 

It is this total complexity that requires use of technology because optimizing inventory considering all these variables for hundreds or thousands of SKUs is beyond what people with spreadsheets can accomplish. The key then, IBM's Dr. Michael Watson said in a Supply Chain Digest videocast, is the use of inventory optimization, which will help identify that optimal balance and where inventory buffers are most effectively maintained. When done correctly, inventory optimization can allow consumer goods manufacturers to reduce out-of-stocks as well as reduce inventory and working capital requirements, Watson says. 

 

But in thinking of all this, I’m also reminded of a post titled, Seven Sins of Demand Planning, Lora Cecere recently wrote on her Supply Chain Shaman website, where she explains that while many companies set up their forecasting systems to forecast what manufacturing needs to make, and when, the larger opportunity is to model what the channel is going to sell, and when. It’s important to note, however, that this isn’t as easy as simply modeling the selling unit at the retail chain level because that’s usually too low of a level to forecast—there’s insufficient data to be significantly relevant. And as Lora also explains, with this increased need for transportation forecasting visibility, there’s a need to forecast transportation requirements; and to use channel data to determine distribution requirements.

 

I’d like to know what you think. Are stock-outs a problem your company wrestles with? If so, how are you—and your company—addressing the challenge?

A couple of recent news reports have me thinking lately about how valuable proprietary data can be as well as the potential costs of a data security breach. For instance, CNN now reports that Sony has had a second data security breach. This news comes as a surprise given Sony’s announcement last month of a security breach exposing details of 77 million users. Sony has already spent $171 million related to the first data breach, and by all accounts, the tally is likely to go much higher.

 

The second example is the data breach at e-mail marketing company Epsilon Interactive earlier this spring. That breach exposed information about roughly 60 million accounts from 75 of the company’s clients. Cyber-risk analytics and intelligence firm CyberFactors recently estimated, in a report I first saw on eweek, that the data breach may end up costing Epsilon years of repercussions, up to $225 million in liabilities and $45 million in lost business.

 

Now, neither of those stories is actually about manufacturing companies, so there may be a sense of relief. But they did start me thinking about protecting IP. For many companies, critical information about products may well be their most valuable commodity. At the same time, the challenge grows rapidly because as more operations are outsourced and product lifecycles and time-to-market cycles shrink, companies must share information with a quickly growing number of partners, suppliers, distributors, carriers and even customers around the world.

 

With all that in mind, I was particularly interested to see a recent BusinessWeek article. As the authors, Anil K. Gupta and Haiyan Wang, note, safeguarding the company’s IP could be the largest challenge multinational corporations face in China. However, given the rapid pace of growth in emerging markets such as China and India, companies cannot afford to lose out on the opportunity.

 

Gupta, a professor of strategy at the Smith School of Business, The University of Maryland at College Park and a visiting professor in strategy at INSEAD, and Wang, managing partner of the China India Institute, have conducted discussions with senior executives at several American and European companies regarding how they manage the risk of involuntary IP leakage in China, and, consequently, now believe corporate leaders must accept that they can never fully protect IP. The key, therefore, is to figure out how to slow down involuntary leakage so companies can accumulate new IP at a faster pace than the loss.

 

Toward that aim, the authors explain that there are at least four strategies to reduce the ability of insiders or outsiders to steal IP. The first two are fairly obvious: tighten physical access to a facility and protect access to data. Building partitions around various operations and prohibiting employees from bringing any type of computing or memory device into the facility can go a long way toward protecting IP.

 

Another strategy, especially relevant in China, is to know your landlord. While it sounds like the stuff of a best-seller by Tom Clancy or Robert Ludlum, it took a few years for senior managers at one of the companies in Gupta and Wang’s study to realize their offices had been wired for bugging before they moved in. Further investigation revealed that the building was owned by an arm of the local government with a reputation for actively appropriating foreign companies’ technologies and sharing it with local state-owned enterprises.

 

Finally, the authors urge executives to cultivate relationships with the government and the media, especially at the local levels. While local governments in China may be eager to attract high-technology players and R&D operations, they also may strive to help local companies advance. In China, it will almost always pay to cultivate solid relationships with government officials and to keep making the case that protecting everybody’s intellectual property is the fastest route to creating an innovation-driven economy.

The business challenges for companies in the high-tech and electronics industry are well-known. For example, product life spans are short—with most companies manufacturing or distributing products that have a lifecycle of 18 months or less. At the same time, global competition continues to grow, as do pricing pressures and unrelenting demand for innovation. The result, of course, is that these companies are extremely reliant on their supply chain partners, and overall supply chain performance is a critical factor in their success.

 

With all that in mind, it really isn’t surprising to see that supply chain issues were cited as one of the top three risks for U.S. technology companies. Indeed, according to a study released last week by accounting and consulting firm BDO USA, of the 100 largest publicly traded technology companies analyzed, 86 percent stress supply chain concerns--including supplier relations, distribution and material costs--as a top risk factor. That percentage reflects a 15 percent increase over the number of companies listing supply chain issues as a key concern in 2010.

 

While I did expect that type of response, I didn’t expect that it would grow so rapidly from year to year. So with concerns about product quality and inventory levels rising, executives at technology companies are notably more preoccupied with the inability to properly execute their corporate strategy than they were in than in 2010 or 2009 (noted by 93 percent of the companies this year, compared with 68 percent in 2008 and only 27 percent in 2009). And as the study notes, this marks a significant change in comparison to the relatively consistent rate seen in concerns over industry competition (cited by 97 percent of the companies) and economic conditions (cited by 96 percent of the companies), which remain the top two most frequently cited risks this year.

 

The findings are from the 2011 BDO RiskFactor Report for Technology Businesses, which examines the risk factors listed in the most recent SEC 10-K filings of the 100 largest publicly traded U.S. technology companies.

 

Concerns over the ability to execute corporate strategy have more than tripled in the past two years as companies face pressure to stay ahead of their competition, says Aftab Jamil, partner and National Director of the Technology & Life Sciences Practice at BDO USA, LLP. Still, executives approach growth initiatives with a “lessons learned” attitude and focus on the supply chain as a means to safeguard against operational pitfalls that could lead to business interruptions or delays, he says.

 

Chief among the supply chain concerns listed by the companies are equipment failure and delays, as well as the potential for disruption to factories and distribution channels as a result of natural disasters and geopolitical issues. What’s interesting about that concern regarding natural disasters and geopolitical issues, which is up 26 percent over last year, is that the disclosures were made before the earthquake and tsunami in Japan this spring.

 

These concerns all call attention to first, the need to develop sound operational plans, and secondly, to have the ability to respond not only to disruptions, but to possible disruptions before they occur. That response begins with notifying the correct people of alerts and events. They then need the tools and technology to collaboratively model possible responses, and then—again, collaboratively—select the response that best matches operational or financial objectives.

 

If you’re in the high-tech and electronics industry, do you agree that supply-chain disruption is now a key concern? My suspicion is that it certainly is, and what’s more, I suspect supply-chain disruptions are a chief concern for all companies—regardless of their industry.

Shipping, including the condition of ports and canals, is generally the type of thing most people take for granted. Well, that is, until costs increase dramatically, there’s a problem of some sort, or both. It now appears, however, that shipping may well soon be on many people’s minds.

 

 

 

That’s because, as noted earlier this year, according to a story that ran on SCDigest’s On-Target e-Magazine, the Panama Canal expansion is running ahead of schedule. The original expansion plan was to enable ships carrying 8,000 containers to get through the Canal. The limit was later raised to ships carrying 12,500 containers to accommodate new so-called “megaships” or post-panamax ships.

 

 

 

However, work is now being done to determine how to get ships carrying 14,000+ containers through the Canal yet still meet the physical constraints. There is, as would be expected, quite a bit at stake: Moving containers through the Canal using these larger ships could reduce costs by as much as $75 to $100 per container per voyage, which certainly adds up quickly if there are 14,000 containers on a single ship.

 

 

 

While the loss of business could be significant for U.S. West coast port operators whose ports would be bypassed if ships headed directly to East coast or Gulf coast ports using the expanded canal, recent developments also are problematic for East coast ports. The problem there is that Eastern ports simply aren’t deep enough to accommodate the larger ships. Consequently, seaports up and down the Atlantic coast are working to begin digging deeper harbors.

 

 

 

An Associated Press story last February noted that when fully loaded, these megaships require depths of up to 50 feet of water to navigate. While Norfolk, Va., currently is the only East coast seaport with that depth of water, other port authorities are working to secure federal permits and hundreds of millions of taxpayer dollars to dredge the bottoms of their bays and rivers to deepen harbors.

 

 

 

Now comes word that the situation may not be quite so cut and dry. That’s because, according to a recent Agence France-Presse story running in IndustryWeek, experts now say that U.S. ports, as a result of years of underinvestment, will be unable to accommodate the larger ships coming through the waterway.

 

 

 

During a visit to Washington, the canal’s administrator, Alberto Aleman Zubieta, expressed concern. Noting problems with dock length, port depth and rail and road links, he explained that the result of years of underinvestment is that a great deal of infrastructure now needs to be upgraded, according to the AFP story.

 

 

 

Furthermore, while Baltimore, New York and Miami may be ready to accept increased shipping traffic in 2014—the projected completion of the Panama expansion—those ports handle only a fraction of U.S. trade and are not on the Gulf Coast, which serves consumers and exporters in the middle of the U.S. Although the Port of New Orleans is on the gulf and is investing $650 million on new canal-linked projects, reports indicate that might not be sufficient. The port does, for example, have permission to dredge its channel to 50 feet but the work would have to be executed by the U.S. Army Corps of Engineers, which is constrained by its own budget and resource limitations.

 

 

 

So it would appear that use of the new expanded Panama Canal could reduce shipping costs for goods being transported from China and other countries to the U.S. On the other hand, if Eastern U.S. ports and those on the Gulf Coast can’t accommodate new larger ships, shippers may opt instead to use deeper ports in the Bahamas and Jamaica. Doing so would introduce additional cost and may even negate the savings of using the expanded Panama Canal.

 

 

 

This is a story with interesting implications that range from the creation of thousands of jobs in port cities to potentially rising prices for everything from electronics to clothing. Have you been watching developments too?

General Motors, like all automotive manufacturers, has been effected by the earthquake in Japan this spring. It’s enlightening, however, to see the approach the company took to managing a significant supply chain disruption, and also to see the results of that strategy because I believe those actions offer lessons for all manufacturers—regardless of their industry.

 

In the aftermath of the catastrophe in Japan, General Motors, which spends about 2 percent of its parts-buying budget in Japan, identified 118 products that it needed to monitor for shortages. The company has since resolved problems with all but five of the products. So, despite early fears that the company may be forced to suspend production of at least some vehicles for some time, GM’s Chief Executive, Daniel F. Akerson, says that the disruptions will have no material impact on GM’s earnings.

 

That’s because, as explained in an article that ran yesterday in The New York Times, shortly after the earthquake, GM assembled hundreds of employees into a team that began working non-stop to manage the supply chain disruption. GM regularly creates contingency plans for supply disruptions, but as Stephen J. Girsky, a GM vice chairman, points out in the story, the company does not create plans for disruptions of this scale or scope.

 

As would be expected, GM did briefly idle two plants to conserve supplies and additionally found alternative sources for some parts. For instance, in mid-March, when deliveries of mass airflow sensors from Hitachi became uncertain, GM shut a plant in Shreveport, La. that makes slow-selling, small pickup trucks, and redistributed the 2,200 sensors on-hand in Shreveport to plants building higher-margin vehicles. The Shreveport plant reopened the following week when Hitachi resumed production.

 

But what I found most interesting, is that rather than focus on securing alternate sources for parts, GM management instead chose to focus on helping many suppliers get back on-line quickly enough to keep car and truck assembly lines running.

 

The objective was to help the suppliers get back into production, not to re-source the parts from somewhere else, said Ronald Mills, GM’s executive director of engineering and program management, in The Times article. He also said that GM likes the parts it receives. Toward that goal, early in the crisis, when information from suppliers was sparse, GM sent more than 40 employees to Japan so they could visit suppliers and determine the extent to which shipments of parts would be interrupted, as well as offer help getting vital plants reopened.

 

As The Times article notes, one supplier could no longer obtain the hydrogen peroxide it uses to process electronic components, and another plant was unable to get the steel it needed. GM arranged new sources in Korea for both companies.

 

I wasn’t surprised that GM didn’t have a contingency plan in place for this type of disruption. Given the scale of the disaster in Japan, it truly does seem to be the type of disaster that nobody is able to plan for.

 

On the other hand, I am interested—and was somewhat surprised—to read about the degree of emphasis placed on helping suppliers get back on-line quickly rather than simply searching for an alternate supplier. It is, of course, in everyone’s best interest for GM to help its suppliers return to full productivity as quickly as possible. After all, the sooner the suppliers are back on-line, the sooner GM can return to full productivity itself. GM also knows what kind of performance levels and quality its suppliers deliver, so it certainly makes sense to stick with proven performers.

Last weekend, while visiting the Allison Transmission plant in Indianapolis, President Obama said that America’s economy is always going to rely on outstanding manufacturing, “where we make stuff.” That is, America isn’t just buying stuff overseas, but is making stuff here and selling it to somebody else, he said.

 

It sometimes seems as if that isn’t the case, given the perception that jobs and manufacturing are increasingly being outsourced to low cost countries. That might not actually be the case, however. For example, the results of recent research from Accenture show that for many companies, past offshoring decisions may not have taken all relevant factors into consideration. What’s more, evolving market dynamics and growth of an increasingly demanding customer base now encourages companies to locate supply close to the source of demand.

 

Furthermore, last month, a Fortune story that ran on CNNMoney.com, featured a Q&A with Auret van Heerden, CEO of the Fair Labor Association (FLA). When asked whether or not outsourcing to China is still a viable option for global manufacturers seeking to lower production costs, van Heerden said labor markets that were previously considered to be inexhaustible—such as China and India--have now tightened up. Additionally, he explained, not only are employers unable to find workers, but wages and energy costs are increasing as well.

 

 

Perhaps most significantly, an IndustryWeek article last week asked the question, “Is the U.S. Becoming a Low-Cost Country?” The reason for the hypothetical question is that according to new analysis by The Boston Consulting Group (BCG), as Chinese wages continue to rise annually and the yuan’s value increases, the U.S. increasingly looks like a smart choice to locate manufacturing plants.

 

In comments similar to those made by van Heerden at FLA, Harold L. Sirkin, a BCG senior partner, said that all over China, wages are climbing at 15 percent to 20 percent annually due to the supply-and-demand imbalance for skilled labor. Consequently, BCG expects net labor costs for manufacturing in China and the U.S. to converge by around 2015—with the result being that a lot more products will be marked “Made in the USA” in the next five years, he says.

 

Higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be only about 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 percent to 30 percent of a product’s total cost, manufacturing in China will only be around 10 percent to 15 percent cheaper than in the U.S.—and that’s before inventory and shipping costs are considered, Sirkin says. After those costs are factored in, the total cost advantage will drop to single digits, or it may even be erased entirely, he says.

 

Consequently, production of goods that require less labor and are produced in modest volumes, such as household appliances and construction equipment, will most likely to shift to U.S. production, BCG predicts. Goods that are labor-intensive and produced in high volumes, such as textiles, apparel and TVs, will likely continue to be made overseas.

 

Government incentives and tax cuts in some states add further appeal for companies considering where it’s best to locate manufacturing. Add increasing shipping costs to the equation, and I can see why simply looking at the lowest-cost country is no longer a viable strategy.

 

Is this what you see as well? Do you see manufacturing—and consequently, jobs—returning to the U.S.?

Has your company recently stepped up efforts to improve supply chain risk mitigation? After the earthquake and tsunami in Japan, there was quite a bit of discussion—including here in the community—about how the disaster would serve as a wake-up call and trigger a renewed sense of urgency regarding supply chain risk mitigation at many companies. According to the results from a new survey, however, that hasn’t been the case.

 

There are some unexpected findings to the study, the 2011 Supply Chain Risk Survey, which was conducted by research and advisory firm ChainLink Research. I was particularly intrigued by the low level of investment for supply chain risk management at many companies. Bill McBeath, chief research officer at ChainLink Research, recently wrote that most companies invest a “paltry” amount, less than $50K annually on managing supply chain risk. Furthermore, while only about 5 percent of the companies surveyed report spending more than $1M, none of the respondents in the survey reported that their company spends more than $3M per year on managing supply chain risk.

 

Interestingly, there is not a strong correlation between company size and the amount invested. One would suspect that larger companies would spend more on supply chain risk mitigation than their smaller counterparts but that isn’t necessarily the case. Indeed, some mid-size firms spend considerably more than many large firms, according to the research. This generally low level of investment is yet another indication of the disconnect between the high impact of supply chain disruptions and the low level of attention and funding spent in mitigating them, says McBeath.

 

The survey confirmed that risk assessment is a common part of the supplier selection process. So, for example, almost 90 percent of the survey’s respondents said supplier risk is frequently (or always) part of their supplier selection process. However, the thoroughness of the risk assessment varies greatly, depending on the company. Some companies only conduct a quick check of the supplier’s financial health while others evaluate the exposure of suppliers’ plants to natural hazards and geo-political risk, as well as the suppliers’ business continuity processes and policies. It is also worth noting that, according to the research, most companies don’t consider risk beyond immediate suppliers. Nevertheless, there are a few firms that do report evaluating not just the immediate supplier, but also the risks in multiple tiers upstream. As would be expected, these companies also report having far-reaching monitoring systems in place to receive early warning indicators when something is potentially going wrong.

 

Finally, the frequency with which companies conduct assessments and audits of risk factors for their suppliers depends on how critical companies deem the suppliers. I was surprised to see that almost 40 percent of the respondents never conduct assessments, or do so less than once a year, even for their most critical suppliers. Only roughly 10 percent of the surveyed companies run these assessments twice a year, or more often, for important suppliers. Again, as McBeath points out, this highlights the difference between the “haves” and “have nots” of supply chain risk—i.e., those who make managing supply chain and supplier risk a key corporate priority compared to those companies with higher priorities.

 

There obviously are numerous risks that may potentially disrupt supply chain activities. On the one hand, an event such as the volcanic eruption in Iceland last year or even the earthquake in Japan this spring are not the type of events that are easily anticipated. However, depending on where suppliers or partners are located, it can be reasonable to expect disruption stemming from geo-political turmoil. And, given the economic climate over the past two years, it certainly makes sense to scrutinize the financial health of suppliers and other key members of the supply chain.

 

 

How would you characterize your company's efforts?

These certainly are interesting times for automotive manufacturers and companies in their supply chains. I use “interesting” because while sales have been good lately, there also clearly are challenges ahead.

 

For example, as reported in The New York Times yesterday, General Motors announced on Tuesday that strong sales of its fuel-efficient small cars and compact crossover vehicles helped the company post a 27 percent increase in U.S. sales in April from the same period a year ago. Ford Motor Company also announced that its sales increased 16 percent from a year ago. GM attributes much of that growth to consumers purchasing cars such as the Chevrolet Cruze to deal with higher gas prices, while a Ford spokesperson said essentially the same thing. That is, sales of small cars such as the new Focus and even the F-Series full-size pickup are growing as consumers keep a wary eye on rising gasoline prices. While sales of the full-size pickup may, at first glance, seem surprising, it’s really a result of Ford’s use of a more-efficient V-6 engine in the new trucks.

 

Gas prices clearly are a critical issue, and they will most likely spur additional sales. With the price per gallon hovering at around $4 in much of the country—and some gas stations in Chicago have even broken the $5 per gallon mark—it makes sense for some consumers to trade in larger vehicles for smaller and more fuel efficient models. The other part of the equation, as noted by a GM spokesperson in the Times article, is that some of the sales are also attributed to consumers returning to the market to replace older-model vehicles. Pent-up demand had been building for the last few years, according to the spokesperson.

 

GM’s results are at least partly a result of the company’s supply chain strategy, which will continue to be a focus for the company. In a Reuters story than ran last month, GM CEO Dan Akerson said that ensuring shortages do not disrupt GM's supply chain is its biggest near-term challenge. He also said supply shortages will not force GM to cut its outlook for U.S. vehicle sales in 2011, currently set at between 13 million and 13.5 million.

 

Those shortages, of course, are the result of the earthquake and tsunami in Japan in March. Subsequent infrastructure problems forced factories in Japan to close or run with limited power, which in turn created a shortage of key auto parts and supplies. Akerson says the supply chain--as a result of the disaster in Japan--is an issue, but he believes GM has navigated those waters “very, very credibly,” the Reuters story reports.

 

But, as production slows and sales increase, inventories eventually decrease. Consequently, April may be the last month posting strong sales numbers until late summer or early fall. May and June are historically strong months for new sales but the inventory reduction could slow those seasonal sales.

 

A Chicago Tribune story today notes that automakers’ sales were strong despite their decision to cut back incentives in April. Indeed, total U.S. incentive spending by automakers fell $250 per vehicle from March, according to Edmunds.com. This is the clearest indication yet that automakers are gearing up for inventory shortages, said Jessica Caldwell, director of industry analysis for Edmunds, in a statement included in the Tribune article. Caldwell adds that although demand for new cars is growing as the economy recovers, buyers may decide to wait for deals to return, and that might not be until fall.

 

So, demand is up as a result of pent-up demand and rising gas prices. On the other hand, supply is dropping and may prove to be somewhat difficult to level out—at least in the short term. It will be interesting to see how companies balance supply and demand.