A short blurb in yesterday's Wall Street Journal tweaked my sensibilities yet again.
Health-care giant Johnson & Johnson braced investors for its first revenue decline in 76 years in 2009, in a sign of the toll the recession is taking on what is usually one of the most resilient sectors of the economy.
The anti-inflammatory drug Remicade posted sales of $886 million, down 2.4% from a year earlier. Remicade's sales were hurt by lower customer inventory levels and increased competition from Abbott Laboratories' Humira and Amgen's Enbrel.
Sales hurt by lower customer inventory levels… presuming that increased inventory creates increased sales. Now where have I heard that before?
After a deep slide in sales in the fourth quarter, Chrysler LLC now faces a new obstacle in its battle to survive: Many dealers are loaded with inventory and aren't ordering new vehicles.
An auto maker books sales when vehicles are shipped from its plants to its dealers, so a slowdown in orders reduces a car company's revenue.
Chrysler is probably not a company that J&J wants to emulate, not that they're really doing that. Unfortunately it is all too common to book a sale once the product leaves the plant, regardless of whether demand exists by the final customer.
AutoNation, the country's largest chain of car dealerships by revenue, estimates that 3.2 million vehicles are now sitting on dealer lots across the country. At the current retail sales pace, that is enough to last more than four months. Chrysler vehicles sold in December had been on dealer lots for 142 days, the most of any maker, compared with 82 last year.
What is truly the value of that product if the demand is soft? No where close to what the "sale" was booked at. That value distortion then cascades up the supply chain, leading to completely erroneous decisions to keep factories operating, cranking out even more product completely unlinked to true final demand.
Most automakers are starting to see the real picture and are idling plants and postponing investment in increased capacity. But are they doing enough? When will they truly link production with demand? Anyone want a four month vacation?