Sunday, September 8, 2013

Extreme measures in inventory management: The Raisin Reserve

In considering new angles to examine on the topic of inventory management, I kept thinking of those products where proper inventory planning is critical: Fresh fish, fruit, and other perishable goods.

In researching inventory management, though, I stumbled upon a very peculiar case study in one particular industry's efforts at handling the vagaries of inventory in an environment with unpredictable demand.

The National Raisin Reserve is a byproduct of American agricultural policy that has recently been in the news because a court case pertaining to raisin sales has recently made it all the way to the Supreme Court, which sent it back to a circuit court for a ruling. [1]

If all of this sounds perplexing, that shouldn't be a surprise. The raisin reserve is a byproduct of a policy created in 1949 to help prevent price collapses in the raisin market. Essentially, each year raisin growers produce their grape harvests, dry them, and then wait from a decision by the Raisin Administrative Committee, a group of California decisionmakers. [2]

The RAC can then decide how many of the raisins should be let out into the market. Any remaining is set aside in the "reserve" which is actually a series of warehouses throughout California. Those raisins are then shipped overseas, fed to cattle, or given to children in public school lunches. However, they are not to be sold through traditional commercial means. [3]

What, then, does all of this have to do with inventory planning? Well, the initial purpose of the reserve was to help farmers smooth the relationship between their supply and market demand. If supply outstrips demand, squirreling away raisins can help ensure that the price remains stable.

However, based on the remarks made by the supreme court (Justice Elena Kagan remarked that it might be "just the world's most outdated law"), it seems likely that the lower court will overturn the rule.[4] At that point, raisin growers will again be susceptible to overproduction and will need to utilize the kind of inventory management systems that have been documented throughout this week's reading.

The question to consider: Are there still other industries that have had these same sorts of artificial controls upon their inventory planning problems? More interesting still, what will happen to these industries when such controls are removed? Will they successfully employ methods like economic order quantity or will they suffer price collapses a the RAC predicted?

[3, 4]

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.