1 - American Memory

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In response to the question, "What would your Inventory be If you were guar-
anteed no shipping interruptions longer than ten days?" those answering affirm-
atively said they could reduce physical inventories as follows:
[In percent]
Share ofjh-nu
Potential reduction in Inventory by days: retponding a/Hrmativeiv
10 to 19 12
20 to 30 57
31 to 65 31
Total (70 percent of total respondents) 100
The corresponding dollar value of potential inventory reductions is as follows:
[In percent]
Firmi
Potential reduction in inventory valuation : rtsponding afflrmativety
10 to 19 18
20 to 40 81
41 to 60 6
Total 100
The cost of carrying extra inventory consists primarily of Interest and ware-
housing expenses. The aggregate total of the cost of carrying extra inventory by
the respondents was $2.8 million, representing 0.9 percent of their gross sales
volume of $300 million in 1973.
Wliolesale Arms estimated their costs of carrying extra inventory at an average
1.5 i)ercent of sales, while retail firms averaged an estimated 0.5 percent of
sales.
To obtain an Industry-vride estimate of the Impact of extra inventory, these
factors were applied to total sales. In the case of wholesale sales in Hawaii for
1973, the total was $2.04 billion. By applying the percentage of 1.5 jwrcent to
this total, we estimate that wholesale firms may have spent about $30 million
to manage the extra Inventory they carry. Similarly, total retail sales for 1973
were $2.74 billion. By applying the extra cost of 0.5 percent to that total, we find
that retail firms may have spent about $14 million in extra inventory costs.
Therefore, on this basis the total costs to wholesale and retail firms in Hawaii
for maintaining "Insurance" inventory were estimated to be approximately $44.3
million in 1973. This averages $200 per household in Hawaii.
Hawaiian business firms viewed the period between July, 1971 and December,
1972 with apprehension. During that 17 month period, three different striltes shut
off incoming and outgoing sea cargo for a total of 5% months. Businessmen saw
their marlcet penetration and sales drop. Consumers were faced with rising
prices as product availability and variety diminished. A guarantee of no shipping
interruptions would offer the following benefits:
1. A number of small firms were forced to discontinue business as a conse-
quence of their inability to obtain delivery of their products, while incurring
substantial debts In the process. Because Mainland manufacturers often bill
their island business customers ten days after a shipment leaves the factory, a
shipping interruption would devastate a small merchant whose cargo Is along-
side or aboard a stalled vessel. A guarantee of no shipping interruptions longer
than ten days would give a business time to divert any cargo to air transport
while allowing ship-carried merchandise to be delivered as scheduled, thereby
avoiding a crippling drain on cash flow.
2. When basic products are in short supply (e.g. paper or steel), firms attempt
on a nationwide basis to stockpile in order to prevent plant shutdowns caused
by backordered materials. The cost to Hawaiian firms of handling additional
shortage-based inventory becomes prohibitive. An assurance that goods could
travel freely by sea could cut these inventories substantially, thereby passing on
a reduction of cost to consumer.
The cost of carrying extra inventory per dollar of sales of those affected range
from 0.4^ to 2.9^. This expense is passed on to all consumers In Hawaii, regard-
less of occupation. The psychology of shortages turns the Hawaiian consumer