By Timothy Aeppel

(Reuters) – Ryan Gunnigle, in addition to the supply-chain problems everyone faces – from clogged ports and empty shelves – is focusing on the possibility of the opposite problem: gluts.

The chief executive at Kids2, an Atlanta-based toys company, stated that customers are making crazy orders and it is difficult to gauge the true demand. The holiday season is always a good time for business, but this year the situation has changed.

He said that the main danger is companies ordering too many products as they rush to fulfill orders. This could be especially true in the lead-up to Christmas, when there are likely to be piles upon piles of unsold high chairs and electronic baby books.

Economists see also signs of a demand peak that will ease inflationary pressures over the coming months.

Cornerstone Macro’s Head of Economic Research Nancy Lazar stated in Friday’s seminar that the surge in spending for items such as computers and furniture has already stopped and that there is less demand in 2022. She said that supply chain blocks will ease and this would lead to a drop in demand, which “both puts downward pressure on the prices.”

Risks for global producers are similar.

Businesses that depend on factories far away, like Kids2, produce in China, naturally respond by increasing orders. They worry about not having enough stock to replenish their inventory. This makes the situation worse as orders are placed at distant factories in an ever greater rush, which is known as the “bullwhip effect”. This situation is made more difficult by the Chinese pandemic and energy crisis.

Gunnigle stated that he is seeing signs of the supply problem improving, such as a drop in shipping container costs and fewer “blank sails” when one of their cargo containers misses its place on a Chinese ship.

He said, “We are starting to see things flowing a bit more easily.”

Despite this, it is difficult to plan when there are so many unknowns.

Think about the electricity shortages that are roiling some Chinese factories in certain regions of China. Gunnigle learned recently that China’s factory producing baby teethers for Kids2 had halted production until their energy problems were resolved. He said that the producer used a plastic type with a rising cost. This, along with rising energy prices, makes it economically uneconomical.

PADDED LEAD TIME

Gunnigle has the ability to assess the risks of overstocking on goods. Gunnigle is not like many others who have opened shops in foreign countries. However, he recently invested $20 million to open the first phase for a complex of factories on the Yangtze River in China.

This factory is part of a joint-venture facility that makes up half of all the products sold worldwide. The majority of the remaining goods are made in China. His response time was much faster than that of our competitors, he stated. He noted that Toys2 took two-and-half years to arrive in China from May. That is on top of its normal 70 day average.

He said, “We have really increased our lead time.” He said that manufacturing is not the only thing we have improved upon. “We also estimate the amount of time required to reach the port and load the cargo onto the vessels, as well as the time taken to unload them.”

China had been the bottleneck in China earlier in the year. His own factory, and close relationship with the joint venture producer enabled him to shift production quickly towards those items that faced the greatest bottlenecks. In order to maximise shipments of most-in-demand products, the company prioritized which goods were placed into containers.

Problem now shifts to the United States. This is focusing on Southern California. More than 100 ships awaiting entry to Long Beach and Los Angeles earlier this month.

Gunnigle said that this will be changing in the coming months. He said that his operations team now focuses on China’s bottlenecks at the end and beginning of next year. “Because containers off the West Coast and East Coasts aren’t being returned to China quickly enough to replenish Chinese goods to support Q1 demand, they will not return them to China.”

One reason that he’s keeping an eye on potential oversupply is all of the company’s earlier work. He stated that there was a lot more inventory than expected. “I don’t want to get too involved.”