Internet nervous system key to taming recession

March 13, 2002|By Jay Hancock

THANKS TO the Internet, the Eclipses and Galants at JBA Chevrolet Mitsubishi in Glen Burnie get to the dealership more quickly these days, spend less time on the lot and are more likely to have features customers want.

It used to take four months or more between when JBA ordered a Mitsubishi and when it arrived. Because shipments often included models that were somewhat unpopular or already in stock, the typical car sat on the lot for two or three months before being driven home.

But that was before JBA and other Mitsubishi dealerships linked up through the Web to the carmaker's factories. Now U.S.-made cars arrive in two months or less and get sold after 45 days or so, on average. The whole system works more smoothly, with lower storage expenses, better factory efficiency and higher profits.

At the Mitsubishi plant in Illinois, "they can actually go in via computer and look at what all the dealers have in stock," says Brian Leachman, Mitsubishi sales manager at JBA. "They can look at our region and say, `Hey, this region's really heavy in Galants or really heavy in Eclipses. We're going to back off production on this until these guys move some units.'"

The system is a plus for Mitsubishi and its dealers, but it is also a boon for the economy and the country. Hundreds or thousands of U.S. companies have set up similar networks, and the result, many economists believe, is a reduced risk of recession and an improvement in the economy's ability to recover.

A case in point is the recession that officially began a year ago and extended into the fall.

The downturn, triggered by a traumatic stock market swoon and accelerated by the Sept. 11 terrorist attacks, seemed to have the makings of a bad, long slump. But now economists are questioning whether it was a real recession in the first place. If so, it was certainly one of the mildest on record.

Credit Internet-based "supply chain management" systems, such as Mitsubishi's, with keeping the slowdown mild. By linking retailers, wholesalers and producers in a kind of neural network, these systems allow small, quick, painless adjustments to the changes in demand or supply that used to freeze up the economy.

In the old days, retail sales might soar or slump significantly, but manufacturers and other suppliers wouldn't find out about it until weeks or months later.

If sales plunged in such an information vacuum, producers would crank out too much product for awhile and then drastically cut back, laying off workers and waiting for the excess inventory to work itself off. If sales boomed, factories and stores would run out of products, resulting in supply bottlenecks, scarcity and inflation.

In either case the economy would falter, often tumbling into recession. Now that it can finesse today's production into tune with today's demand, the economy can slow or accelerate gradually, if it needs to, without the brake-slamming or rubber-peeling lurches that used to lead to 10 percent unemployment.

One piece of evidence: Even at their worst during last year's slowdown, U.S. wholesale inventories reached only about 1.33 months' worth of sales, not much more than normal and lower than previous recessionary gluts.

Sure, other factors helped tame the recession. But if Alan Greenspan's money creation played a role, so did the newly wired economy, which quickly got the money to the places it could do the most good. If free-spending consumers kept America working, Web-based systems such as Mitsubishi's made sure goods were in the stores for shoppers to buy.

Communication between stores and producers has been improving for decades, but in the past five years the Internet substantially accelerated the process, which was driven by the fad for slashing inventory costs through "just in time" deliveries. When your soap or soup is scanned at the supermarket these days, chances are the checkout computer is linked to the manufacturers, which adjust accordingly.

While such hookups originated with manufacturers, service companies, which make up a bigger chunk of the economy, have also been using the Web to let supply talk to demand.

For example, P&O Princess Cruises uses software by Manugistics Group Inc. to calibrate promotions according to geographic region and price to fill the most cabins at the highest revenue. Manugistics, based in Rockville, also set up the Mitsubishi network and is a key player in building the economic nervous system.

Recessions are not obsolete, but they seem rarer. Between 1945 and 1981 the average economic expansion lasted only 3.7 years before recession killed it. The two expansions since then were 7.7 years and 10 years, and it is reasonable to think that more and better information shared among economic players accounts for the difference.

The Internet economic miracle is alive and well, despite last year's obituaries. The Net helped cure the slump that was deemed by some to have exposed it as hype and nonsense.

"We've never seen a drop in sales here," says Dan Buckler, general sales manager of JBA Chevrolet Mitsubishi. "Everybody's been on TV for the last six to eight months talking about recession, and we've never seen it."

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