Chinese cotton farmers are holding on to their harvest from the past season waiting for prices to climb. Estimates suggest the amount of cotton being held off the market may be close to two million metric tons representing nine percent of the world supply. This hoarding coupled with a lack of production reporting throughout Asia has made the cotton market slightly volatile.
- Is there a competitive advantage for Chinese manufacturers given the situation described in the article?
- How is hoarding affecting supply chain management, particularly in China?
- How should a shirt manufacturer respond to the present situation in terms of inventory management? Do your recommendations change depending on whether the manufacturer is located inside or outside of China?
- Let’s extend the analysis for this hypothetical shirt manufacturer. Assume the company makes only cotton shirts. What type of cost does cotton represent? If the price per pound of cotton goes up, how does this affect the manufacturer’s break-even point?
SOURCE: C. Cui, “Chinese Take a Cotton to Hoarding,” Wall Street Journal (Retrievable online at http://online.wsj.com/article/SB10001424052748704680604576110423777349298.html)