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Government Shutdown: Impact on Inventory Management

October’s government shutdown cost U.S. taxpayers $24 billion.  Although a deal was made to end the shutdown, that deal ends January 15, 2014.  As a small business owner, not only do you need to recover from both the short and long-term impacts of the shutdown, you will also need to prepare for the potential repeat at the beginning of 2014.  The 16-day closing of the government had significant repercussions for small businesses that could still be mitigated by a solid grasp on inventory management data.
  • Consumer Spending
The furlough of thousands of federal workers meant no pay during the forced time off – to the tune of $2 billion.  No pay means no spending.  Communities with a large, federal worker presence felt, and are still feeling, this negative financial impact.  Retailers dependent on these consumers saw their investment in perishable items literally go bad and small businesses providing services like childcare felt the hit to their bottom-line during October. As a concrete example, because the National Oceanic and Atmospheric Administration (NOAA) was unable to assign crab harvest levels, the Alaskan crab fishing season was delayed three days.  That may not sound like a long time, but each lost day led to thou­sands of dollars of lost revenue for both the fishing industry and coastal com­munities. Additionally, small business con­tracts with the Department of Defense were cut by almost one-third and spending was down 40 percent.  There was $217 million per day in lost federal and contractor wages in the Washington D.C. metropolitan area alone.
Inventory Impact: What do these examples have to do with inventory?  Simply put: goods not sold or used.  Perishable items purchased, not sold, and subsequently wasted – money disposed.  Non-perishable items sitting on a shelf much longer than intended - which only increases a company’s carrying costs.  Contractors not only losing wages they will never recoup but forced to sit on inventory investments they may never use.  Without a clear understanding of what a business owns and historical data detailing inventory turnover from previous quarters (information an inventory tracking solution would provide), any small business would find it difficult to quantify the monetary impact of the government closure – which makes preparing for January 2015 even more difficult.
  • Travel & Tourism
The U.S. Travel Association stated lost travel spending equated to $152 million dollars per day of the shutdown.  The National Park Service (NPS) estimated it did not collect roughly $76 million per day from entrance fees, campgrounds, and tours – a total loss of $500 million.  The Smithsonian alone lost $4 million during the closure.  These large numbers are striking, but it is much more difficult to quantify the revenue lost for small businesses dependent on these travel and tourism dollars – hotels/motels, car rentals, restaurants, shops selling souvenirs, taxis, etc. Communities outside of Utah’s Zion National Park saw their bottom lines diminish. Ed Nelson, general manager of Best Western Red Hills in Kanab, experienced a loss of 12 percent. Iron County reported about $80,000 in lost revenue from cancellations and a single hotel in Washington County serving Zion reported losing $87,000 in the shutdown. Businesses within 60 miles of the 800 square mile Great Smoky Mountains National Park in Tennessee missed out on $33 million in visitor revenues.  Projections showed six rafting businesses at the Grand Canyon alone lost a combined $1 million in the final weeks of the 2013 rafting season.

Inventory Management Impact:

Again, what do these examples have to do with controlling inventory?  People who are not traveling don’t spend money.  Without a tool to compare inventory data from quarter to quarter, year to year a business is operating in the dark.  A solution addressing inventory management issues would detail the percentage of inventory turned over during October 2012 and the percentage of October 2013.  Without that comparative data, small businesses can not adjust inventory purchasing – which may be imperative come January 2014.
  • Holiday Shopping & 2014
Since the deal to reopen the government only guarantees funding through January 15, 2014, the U.S. could potentially see the same negative economic impacts in just a few short weeks.  With the latest shutdown fresh in the minds of furloughed workers and travelers, small businesses may see less consumer spending this holiday season because shoppers are likely to hold back on spending and investment when they know a similar showdown might be right around the corner.  According to Standard & Poor’s U.S. chief economist, Beth Ann Bovino, “If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their checkbooks. That points to another Humbug holiday season.”