Thursday, April 2, 2020
Is memory like water, hand sanitizer, or TP?
A few weeks ago, I went to a Target shopping for basics. I don't shop at Costco and buy a month ahead of time, I get a few times a week and just buy what I am about to run out of (I am a big fan of vendor managed inventory). I went to the paper towel and toilet paper aisle and it was empty. I had no idea why. I called a friend and said "is Target going out of business? whats up?" I was informed that there was a run on products due to COVID-19. Luckily for me, the grocery store down the road had tons of paper products, so a picked up some. A few days later obviously things got a lot worse. My reaction was "go to store, get a ton of everything, this is a survival competition.... whoever gets the most stuff wins " ... I am an engineer ... but I am still human. Note: I have literally seen the supply chain manager for a hyperscale company do the exact same thing.
In the 2-3 weeks since, supply and demand forces kicked in and.... from this... we can learn a lot about commodity markets like NAND and DRAM (Yes, kids, memories are a commodity).
Bottled water was a quick one to go from all the stores. "what? there is no water? then I need more!" I was at a Dollar Tree where a customer came it and said "I want to buy all the bottled water in the store" ... the manager spent the next 30 minutes loading it into a truck. We had a shortage for about 2 weeks and then... funny thing happened. My grocery store stacked water to the roof on 3 aisles. No more shortage. No more people buying pallets of water.
SUMMARY: Real demand didn't increase. People are not drinking more water. The fear increased so people want more and bought tons to add to their inventory. The greater the shortage, the more they want. Once the supply increased, the fear was gone, people say "OK I will just buy water when needed."
Toilet paper is running short and last time I was at stores, the shelves were still empty. It is being rationed and people are ordering on Amazon with a deliver time of late May. Unlike water, stores have not been able to increase supply fast enough so the panic continues.
SUMMARY: Real demand didn't increase. People are not using more TP. The fear increased so people want more and bought tons to add to their inventory. The supply did not not increase, the fear is still there. When this is over, what do you think will happen to TP sales?
Hand Sanitizer is running short and last time I was at stores, the shelves were still empty. People are ordering on Amazon with a deliver time of June. People want more and unlike water, stores have not been able to increase supply fast enough so the panic continues
SUMMARY: Real demand DID increase. People are using more Sanitizer .The fear increased so people bought tons to add to their inventory AND to use. The supply did not not increase fast enough, the fear is still there. When supply is there, people will probably use more hand sanitizer for a year or more.... maybe forever.
These give examples of what happens with memory. Because price gouging is illegal in groceries (but not memories???) price didn't affect most groceries. When there is a shortage, everyone wants more to store for inventory. Sometimes supply can adapt, sometimes it cannot. Sometimes real demand increases.... often it does not. Lots of discussion on what is happening today and next year in DRAM and NAND to follow up on this.
Next we can discuss supply dynamics of Masks, ventilators, gloves and whether they should or should not (considering microeconomics input only) build more factories. Spoiler alert: It is like NAND, NOR and DRAM capacity planning.