"The German vendor had made this style of product for them for over 20 years," says Greenblatt, "and quoted them four months to make the new version." Marlin said it could do the job in four weeks. And it delivered. "If a car company doing a model-year changeover can get the assembly line going faster, the value of that extra three months of production is enormous," says Greenblatt. "The baskets are paid for in a couple hours."I've described a "liquidity shock" as a sudden spike in a person's idiosyncratic short-term discount rate: a dollar today is suddenly a lot more valuable than a dollar a month or two from now. In this case, there's an incredibly steep discount rate for a real good: a basket in four weeks is a lot more valuable than a basket in four months. Drilling in just a bit more, the origin of this is a problem of coordinating different elements of the production process: while it could have been anticipated a year earlier that some kind of basket would be needed, by the time the specifications are available, the other parts of the production plan are being implemented as well, and you need them all (with the same specifications) to come together as quickly as possible. So here we have something of a liquidity shock created by something of a coordination problem (though neither of those words is being used exactly as I usually use them), combining two of my favorite phenomena.
Tuesday, July 12, 2016
liquidity and coordination
A kind of longish article from three years ago tells the story of a wire-basket maker adapting his company in response to foreign competition. One of the responses is to serve clientele with specific, urgent needs: