Inventory Management

What happens when people stop buying your product? Early numbers indicate that 2008 was one of the worst holiday shopping seasons on record, when you compare with the prior year. And as anticipated, inventories are still high at the retailers. From sweaters to flat screens, retailers have been slashing prices in efforts to try to get people to buy, but uncertainty about the economy and jobs as well as big losses in investments have cut deeply into the average American’s gift budget.

Just like a log jam on a river, the retail inventories are backing up through the entire supply chain. In the flat panel market, retailers are cancelling or delaying orders for new product because their warehouses are already full as they head into the traditionally slow sales season in the first half of 2009. This means that the flat panel TV manufacturers are seeing orders dwindle, and in turn, they are reducing their orders to the flat panel makers.

Flat panel makers are responding by cutting back on production. According to various reports, LG Display is suspending production on some of its lines from December 24 to January 4, Chi Mei Optoelectronics (CMO) fired 3,000 contract workers as a result of production slowdowns, Wintek layed off 10% of its employees, Innolux is running at only 80% of production capacity, and Sharp plans to close two LCD panel lines in January. And several LCD makers have announced plans to postpone construction of new fab lines. This is a difficult time for the panel makers, because they need to run their plants at full capacity in order to get the full benefits of their efficiency. The plants are expensive to build, so the manufacturing cost of each panel goes up as the plant production is scaled back. At the same time, large inventories and slowing demand are driving down the market price for the products. The flat panel industry was already highly competitive; the current conditions are likely to be downright brutal.

As a result, expect to see some makers exit the market, or consolidated with other producers in order to survive this downturn. There are already some reports that some Taiwanese LCD manufacturers are open to the suggestion that they merge. 2009 is hsaping up to be a difficult year for the LCD panel industry.