By Jon Miller | Post Date: December 26, 2006 11:37 AM | Comments: 3
It's time for my second annual Boxing Day railing against the waste caused by holiday spending at the year end. This year we find a December 23, 2006 Wall Street Journal article titled How Christmas Brings Out the Grinch in Economists lending support to my theory that we would all be better off if we spread our holiday shopping across 12 months rather than the 12 days of Christmas:
Economists aren't suggesting Christmas be abolished. Still, in the latest Wall Street Journal forecasting survey, more than two of three economists opined that if Christmas ceased to exist as a holiday, consumers would either spend more on themselves or spread their gift purchases more evenly across other events such as birthdays.
This is attributed mainly to the fact that people buy "ill-considered presents" in the form of unwanted goods that do not please the people who receive them. George Mason University Professor Tyler Cowen says "The economy is better off" if fewer gifts are given since the gifts are not enjoyed much anyway. The gifts are wasted, in other words. From the WSJ article:
In the cold, hard analysis of the dismal science, Christmas is a highly inefficient way of connecting consumers with goods.
Putting the goods in the hands of people who want them improve what economists call "social welfare" which is the overall well-being of a society (and not to be confused with government financial assistance). The Wall Street Journal article introduces what economists call this "deadweight loss" and is defined as follows in a Wikipedia entry:
In economics, a deadweight loss is a permanent loss of well being to society that can occur when equilibrium for a good or service is not Pareto optimal, (that at least one individual could be made better off without others being made worse off). Deadweight loss can be thought of destroying a given quantity of a good or service in question, and in many cases natural waste in a system (like leakage from water pipes) is equivalent to, and is also called, deadweight loss.
This type of seasonal demand spike causes problems from a Lean manufacturing perspective since it becomes necessary to either build up inventories ahead of time for the holiday season, creating waste in the form of storage, overproduction, obsolescence, handling, etc. Equipment and other fixed assets that are not as flexible as labor must also be kept on hand during the slow season, creating a waste as assets do not generate as much cash and profit in these times.
The Lean answer is to do heijunka (averaging volume and mix to smooth production) through a combination of increased flexibility and speed in the manufacturing supply chain, customer service and sales policies to support a leveled demand, and modified consumer behavior. From the article:
In theory, smoother sales throughout the year would be better for retailers, enabling them to avoid the extra costs of planning and stocking up for the holidays.
According to the article, some economists think we would be better off without holiday spending, to the tune of about $457 billion this holiday season or about $4,000 per U.S. household, according to National Retail Federation numbers.
So what would it take to get rid of this year-end spike and level out the demand for consumer goods so that we can convert those warehouses into value-adding space, the cash tied up in inventory and idle machines, and be Leaner and less wasteful as a society? According to the WSJ article:
Overall, sales tend to spike about 15% in the last two months of the year, accounting for a quarter of retailers' annual revenue.
If we leveled out our spending that would be an extra 1.25% per month for 12 months. I think we could all handle that.
And no, I did not get what I wanted for Christmas.Comments are moderated to filter spam and inappropriate content. There may be a delay before your comment is published.