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Feb 182013
 
The time to buy your essentials of all types is before the panic sets in.  Seems obvious, but most people fail to do so.

The time to buy your essentials of all types is before the panic sets in. Seems obvious, but most people fail to do so.

It is now just over two months since the Sandy Hook shooting caused an increase in the rate of buying firearms and ammunition due to people’s concerns about new restrictive legislation, and their hope that the legislation wouldn’t apply retrospectively to existing firearms, magazines, and ammunition.

We’re not primarily a firearms focused website, and our main perspective on this matter is to examine this real life example of our economy’s fragility and inability to quickly respond to changes in the supply/demand equation.  What happens with firearms could just as easily happen to fuel or medical supplies or food items – or anything else at all.

It is true that gun store shelves are no longer totally bare, but if you look at the price tags on the rifles and pistols now available for sale, you’ll notice steep increases in price.  Ammunition is also returning to the shelves, but in limited quantities and again at much higher prices.  Here’s a recent article from, of all places, USA Today that confirms these issues continue to be a problem.

We also can quote an interesting report that was published on a private member only website, explaining some of the constraints that firearms manufacturers are facing.

Smith & Wesson : Is running at full capacity making 300+ guns/day-mainly M&P pistols. They are unable to produce any more guns to help with the shortages.

RUGER :  Plans to increase from 75% to 100% in the next 90 days.

FNH :  Moving from 50% production to 75% by Feb 1st and 100% by March 1.

Remington :  Maxed out.

Armalite :  Maxed out.

DPMS :  Can’t get enough parts to produce any more product.

COLT :  Production runs increasing weekly but restricted by shortages of bolt carriers.

LWRC :  Making only black guns, running at full capacity…can’t get enough gun quality steel to make barrels.

Springfield Armory :  Only company who says it can ‘meet demand’ but meeting this demand sees them running 30-45 days behind.

AMMO :  Every caliber is now allocated! We are looking at a nationwide shortage of all calibers over the next 9 months. All plants are producing as much ammo as possible with 1 BILLION rounds produced weekly. Most is military followed by law enforcement, and civilians are third in line.

MAGPUL is behind 1 MILLION mags, do not expect any large quantities of Magpul anytime soon.

RELOADERS :  ALL Remington, Winchester, CCI & Federal primers are going to ammo FIRST. There are no extras for reloading purposes… it could be 6-9 months before things get caught up.

Distributors have nothing on the shelves.  What comes in daily goes out, nothing in reserve.

Confirming the comments about ammunition above – indeed, revealing the situation to be much worse, this next quote just appeared on the website for Stockpile Defense, a supplier of bulk ammunition to the Front Sight firearms training school in Nevada.  They say their best case scenario is to get only 20% of the ammo they have ordered this year.  One wonders what their worst case scenario might be!

Due to extreme shortages in the ammunition market at this time supplies have run VERY LOW. We continue to get as much ammunition as possible regardless of price. Prices have also increased as much as 50% on some items. At this time we can not guarantee an adequate supply for all students. 9mm and .223 are the hardest to come by.

We are asking students to plan ahead and bring what ammunition you can for the class. We apologize for this inconvenience and please be assured that we are doing EVERYTHING in our power to keep everyone shooting. These are extremely volatile times and conditions are changing on a daily basis. Please check the website often for updates.

Again, we apologize for this inconvenience in these matters and we appreciate your understanding.

Please bring as much ammunition you can with you. We will supplement the rest. We are trying to supply between 500-1000 students per week and at this junction we just are not able to acquire enough ammo to supply all of your needs. We are very sorry for this.

We have 50 million rounds of ammunition on order for the 2013 year. We will not see all of this delivered. If we see 10 million that is my projected best case scenario.

The Growth in Gun/Ammo Demand Isn’t as Huge as You Might Think

It is worth repeating that these extreme shortages of both guns and ammunition are not because of an extreme increase in demand.

There have been only modest increases in firearms sales.  The FBI reports the following number of calls in to their ‘NICS’ service – every time a person buys a firearm from a dealer, the dealer has to call NICS for an instant background check.  Not all calls to NICS are for firearm sales, and some calls represent a sale of multiple firearms, but as a rule of thumb measure, the volume of NICS calls tracks the volume of new gun sales in the country.

The FBI show the following results :

Month Most Recent     Previous Year     Increase in number     Increase in percent
December     2,783,765 1,862,327 921,438 49.5%
January 2,495,440 1,377,301 1,118,139 81.2%

In particular, note that the total number of checks in January decreased compared to December.  Whether this is due to lessening of demand, or just inability to supply, we don’t know.

So these modest increases have totally destroyed the industry’s ability to supply.

Modern Manufacturing is No Longer Flexible

We wrote before on how modern manufacturing is subject to multiple dependencies – for example, a car manufacturer can’t make more cars if he can’t get more of all the sub-assemblies that go into making the car from their suppliers.  For example, the car manufacturer probably buys in its engine management computer systems from other manufacturers.  And these other manufacturers probably buy in the circuit boards, the chips, and so on that go into the units.  And the circuit board manufacturers in turn buy in the components that they then make into the prepared circuit boards, and so on and so on.

The highest profile example of this trend is Boeing.  It used to design and build airplanes from almost the base raw materials.  Originally it would make its own engines, too; but after being broken up due to anti-competitive issues, it split off its engine manufacturing (and its airline operations too) and concentrated on the airplane building.

But now, with its new 787 airplane, it has outsourced not just much of the design, but most of the building too, reducing its role to that of coordinator and final assembler of the airplane from the subassemblies other companies have made.

The good sense of that strategy is very much in question currently.  Not only was the 787 many years late in its development process, but the entire fleet have now been grounded due to safety concerns.  The plane’s electrical system – designed by one company, with batteries from another, integrated by a third company, and with control systems from a fourth company, are showing an alarming tendency to burst into flames, and you don’t need to be a rocket scientist or even an airplane engineer to understand that this is not a good thing.

Somewhere along the way, it seems that Boeing lost control of the overall management and safety architecture of its new plane development, and rather than becoming the ‘Dreamliner’ that it fancifully named its new plane, it is instead more of a nightmare for Boeing, the airlines who have bought them, and the public who may have to anxiously fly in them.

We are seeing the multiple dependencies problem play out with guns and ammo too.  A shortage of bolt carriers is limiting Colt’s production; a shortage of gun quality steel is impacting on LWRC and a shortage of all parts in general is impacting DPMS.  As for ammunition, we know there is now a shortage of primers, and who knows what else as well.

Automation Prevents Flexibility

The other key issue is that all the automation that goes into modern-day manufacturing – while a very good thing from the perspective of low-cost high-efficiency manufacturing – means that increases in production rates may require buying more machinery for the factory.

It was an easy step, decades ago, for a factory to simply hire more workers, particularly for relatively unskilled jobs that didn’t require a huge investment or delay in a training process, and of course, when demand cycles reduced, to let those people go again.  There was little up-front cost, little leadtime/delay, and no ongoing liability.

But a company can’t buy a multi-million dollar machine, and probably also need to build a new bay in their factory to house it, at short notice.  Even if it somehow could, how long would it take to build the new factory extension, and to receive the new equipment it had ordered?  And, after having done this, it would then be saddled with the machinery in the event that there was a future downturn in demand.

It also used to be that manufacturers would have reserve capacity in their factories – the ability to add a second or third shift, for example.  But more and more, manufacturers are preferring to soak up their ‘surge capacity’ rather than buying in more capacity, and so they don’t have as much reserve capacity now.

And, even if they did, remember the issue we opened with.  They might be able to double their output, but what if their sub-assembly supplier can’t also double their output to match?

Manufacturers Deliberately Operate Very Close to Capacity

It makes no financial sense for a company to invest in two very expensive machines that each run one shift a day.  Instead most companies these days would prefer to operate one expensive machine for two shifts a day, and, if demand grows further, to add a third shift too.

This makes financial sense, but what then happens if demand increases but the manufacturers are already running at close to full capacity?

The other part of this picture is what happens when all manufacturers are running at close to maximum capacity and then one of the manufacturers is knocked off-line – unscheduled maintenance, even scheduled maintenance, or whatever.  We see this happen regularly these days in the oil/gas industry, where the closing of two or three refineries simultaneously around the country (for different reasons, but coincidentally at the same time) massively drives up the price of gas at the pump.  Indeed, as we write this, we are staring at huge increases in gas prices at the pump, at the same time that crude oil supplies are abundant.

This points to an interesting related point.  Manufacturers benefit from artificial shortages.  When there is a shortage of product, the manufacturers no longer have to compete with each other, but instead they can all push their prices up and enjoy the bonus windfall profits that come their way.

We see this also in the aviation industry.  As more and more airlines disappear (little more than ten years ago there were more than ten major airlines in the US, with last week’s announcement of the AA/US merger, we are now down to only three) and with the remaining airlines deliberately limiting their flights, we not only get to suffer more flights in the middle seat, but we have to pay more for the tickets, too.

Another example – the recent increases in vegetable prices, with some vegetables increasing in price more than 50% almost overnight, due to weather issues in some areas reducing supplies.  Now you could fairly say that it is very hard to match the supply and demand with a perishable product, but the fact remains that – with the entire world as potential suppliers of foodstuffs, we have seen prices for basic vegetables such as even broccoli shoot up from under $1.50/lb to around $3.00/lb.

Empty Warehouses

Another change is the lack of finished goods inventory.  In the past, it was common for companies at every step of the supply/distribution chain to hold reserves of product, so any sudden surges in demand could be satisfied from the warehouses full of finished products.  And by the time demand had persisted to the point that the manufacturers needed to increase their production rates, their sub-assembly suppliers also had reserve capacity to help them respond to increased production and offtake rates.

As we can vividly see from the above information, such capabilities are no longer commonplace.  So here we are, arguably the world’s most advanced nation and the world’s largest economy, and unable to supply even 20% of the ordinary normal demand for ammunition for the entire year ahead.

Bear in mind also that a lot of the firearms and ammunition sold in the US is imported.  Why can’t factories elsewhere in the world also supply enough for our needs?  Has a slight uptick in demand in the US overloaded the entire world’s manufacturing capacity?  As unthinkable as it may seem, the answer compellingly seems to be ‘yes, it has’.

Summary

The bottom line is obvious.  You need to at all times keep a reasonable inventory of all products you need and consume/purchase on a regular basis.  With a simple stock rotation system, this costs you nothing, and because it enables you to buy when products are at low prices to grow your inventory, and to use from inventory when prices are high at the store, you can actually ‘earn a return’ on your investment in your own supplies of food and other items.

The example of continuing shortages of firearms and ammunition shows that it only takes a small shift in demand to overwhelm the entire supply chain, meaning that most product becomes totally unavailable, and what little still passes through the distribution channels skyrockets up in price.

The time to stock up on essentials is now, when they are plentiful, not in the future after panic buying has already set in.

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David Spero[suffusion-the-author display='description']

  3 Responses to “Further Analysis on Continuing Gun and Ammo Shortages”

Comments (3)
  1. I don’t disagree with the main thrust of your argument (I think it’s a very good point you make here), however I have to wonder at your use of the word “modest” to describe the recent increase in NICS checks. 49.5% and 81.2% seem like pretty steep increases, even relative to increases from the same months in previous years: 22.4% from Dec 2010 to Dec 2011 and only 4.1% from Jan 2011 to Jan 2012.

    • Hi, Jeff

      Thanks for your comments.

      I’ll readily concede that an 80% increase is perhaps immodest rather than modest. And perhaps I deliberately used the word ‘modest’ to contrast with the ‘huge rush on guns’ type stories that have been flooding the media the last two months.

      We can argue the semantics – and as a wordsmith, I agree that words are important – and while I’ll agree that 40% and 80% increases are significant, they are also less than a doubling of normal levels of sales. So, not modest, but not a ‘huge rush’ either, yes?

      That is my main point. Sure, there are increases, and yes they are significant. But a 40%/80%/whatever increase in demand has totally zeroed out the entire worldwide industry’s ability to supply us with either guns or ammo, and that which can be found has doubled in price.

      That is my point, and thank you for saying it is a very good point. 🙂

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