The Lemon Fool

Not sure if this is the right place to post this but here goes:

When looking for a sector to invest in, I put together a logic chain which indicates that over the medium term said sector should outperform due to increased demand.

Something that has concerned me for some time is lean production as described in the 1991 book 'The machine that changed the world' which details a lot of Toyota's efforts to become the most efficient car manufacturer in the world.

Lean production relies on small inventories of components which are continually topped up 'just in time' thus reducing the need for huge warehouses and money tied up in huge stockpiles of components. Must admit that it worked pretty well for Toyota, but my concern has always been that as it relies on everything else working properly, the cost of that efficiency is fragility when the system is stressed as it is at them moment due to the virus.

I'm not picking out the car industry for special attention, the lean production ideals have been followed in other industries and they are all similarly vulnerable to a supply problem snowballing into a disaster.

I consider this similar to the way some companies are managed. When the emphasis is focussed on cutting hours, increasing efficiency and some other tactic such as replacing retiring full time staff with part timers or not replacing them at all. It looks good while everything works, given a nudge of bad luck the whole company collapses into chaos.

When things go very badly wrong and the situation returns to normal, many companies will be looking hard at their structure and some might decide that having practically no inventory didn't turn out to be a wise move after all.

At the far end of this logic chain, I predict some things:

There will be an increase in the demand for warehousing space.
There will be increased demand for automation.
Supply chains could be shortened if it makes sense to do so.

Obviously, nothing much is going to happen in the short term, but over time, I can see a trend that could be capitalised on.

B.

PrincessB wrote:Not sure if this is the right place to post this but here goes:

When looking for a sector to invest in, I put together a logic chain which indicates that over the medium term said sector should outperform due to increased demand.

Something that has concerned me for some time is lean production as described in the 1991 book 'The machine that changed the world' which details a lot of Toyota's efforts to become the most efficient car manufacturer in the world.

Lean production relies on small inventories of components which are continually topped up 'just in time' thus reducing the need for huge warehouses and money tied up in huge stockpiles of components. Must admit that it worked pretty well for Toyota, but my concern has always been that as it relies on everything else working properly, the cost of that efficiency is fragility when the system is stressed as it is at them moment due to the virus.

I'm not picking out the car industry for special attention, the lean production ideals have been followed in other industries and they are all similarly vulnerable to a supply problem snowballing into a disaster.

I consider this similar to the way some companies are managed. When the emphasis is focussed on cutting hours, increasing efficiency and some other tactic such as replacing retiring full time staff with part timers or not replacing them at all. It looks good while everything works, given a nudge of bad luck the whole company collapses into chaos.

When things go very badly wrong and the situation returns to normal, many companies will be looking hard at their structure and some might decide that having practically no inventory didn't turn out to be a wise move after all.

At the far end of this logic chain, I predict some things:

There will be an increase in the demand for warehousing space.
There will be increased demand for automation.
Supply chains could be shortened if it makes sense to do so.

Obviously, nothing much is going to happen in the short term, but over time, I can see a trend that could be capitalised on.

B.

Its been a serious long term trend even pre-Corvid. Look at the logistics REITs. Segro, London Metric..... The property IT, TR Property, also has - last time I looked - substantial holdings in Europe wide logistics businesses - for an overview of the sector you could do worse than reading their latest half year report:

http://documents.financialexpress.net/L ... 343104.pdf

I hold SGRO and TRY.

PrincessB wrote:
When looking for a sector to invest in,

I'm wondering why you would try to single out a sector rather than invest in the market more broadly.

My focus is on warehousing, in the form of WHR, though I do also hold RGL & SLI. WHR is performing best of the three.

Hi JohnW,

I'm wondering why you would try to single out a sector rather than invest in the market more broadly.

It was an idea that I put into a logic chain that to me makes sense.

My full portfolio contains a lot of the normal stuff so there's most of a HYP along with some more growthy items and some lower yielders such as Unilever and National Grid that I regard as ballast shares that should just chug along forever.

The warehouse idea would be just another sector in a fairly diverse portfolio.

PrincessB wrote:The warehouse idea would be just another sector in a fairly diverse portfolio.

You talk about sectors, like warehousing, but I think you started to touch on wider themes, like logistics and automation. If you haven't looked at it, BlackRock talk about the megatrends that they see. I think it's interesting background reading.
https://www.blackrock.com/uk/individual/literature/whitepaper/megatrend-en-emea-whitepaper.pdf

torata