What Supply? Whose Demand? | Customers, Etc.
A Good Friday reflection from the Carthusians of the French Alps.
I wasn’t going to write a Customers, Etc. post this week—I was on vacation with my family and really didn’t have the time—but then I came across this gem of an article from the Wall Street Journal: The Monks Who Make Chartreuse Don’t Care About Your Fancy Cocktails. There are so many random things I want to say that I don’t know where to begin. Let’s just start with a big lengthy quote from the article:
The monks have decided to cap annual production [of the liqueur Chartreuse] at about 1.2 million bottles, which come in variations of green and lower-proof yellow. Mr. Master says that is more than before the pandemic, but about 10% less than in 2021. The bottles sell for around $70.
The rub is that there is surging demand. A following has developed around Chartreuse because of its unique profile and history, and popularity soared when bars and restaurants shut down in 2020 and more people mixed drinks at home. Sales of Chartreuse grew 47% over the past 12 months compared with the prior year, according to data from online beverage-marketplace Drizly. Sales had been flat in two years before that.
Increasing production would take the monks away from more important matters and would also require them to harvest more resources from the earth, which they thought could harm the environment, says Mr. Master. “The goal of the Carthusians is to not plan for three to five years,” he adds, “but plan for 300 to 500 more years.”
“Unlike nearly all other companies in the world, the monks don’t care about constant growth,” says Father Michael Holleran, a former Carthusian monk who was in charge of Chartreuse production in the late 1980s and is now a priest with the Archdiocese of New York.
I’m imagining a conversation with the abbot of the Grande Chartreuse monastery receiving a phone call that sounds something like: “Excuse me, Père Abbé, we were wondering if you would be able to increase production by another three hundred thousand bottles for the upcoming year? The market is absolutely mad for what you guys are doing up there.” And then the abbot pauses for a moment and says, “Merci, mon fils. No.” It makes me laugh just thinking about it.
Supply and Demand
In my operations class in business school we learned that the purpose of operations is to match supply and demand. At first glance, I thought this definition couldn’t be right. It seemed overly simplistic, and besides, isn’t supply and demand about economics? What does that have to do with operations? But the further I got into the course, the more I came to appreciate this simple definition. You could apply it to literally every corner of the business and at any stage.
Marketing? Make sure you generate enough demand at a sufficiently low enough cost to match production output.
Research and Development? Make sure to create products that future consumers will want (i.e. demand—you are talking to customers, right?).
Customer Success? Invest in the right size of team to ensure customers are retained, but not so much that it eats into margins.
I know I’m not doing the topic justice. If you want a more thorough deep dive, check out The Goal. It’s a quirky “business novel” from the eighties that, despite its unconventional style of storytelling, does a really good job of immersing the reader in the challenges faced by a business that’s fighting to match supply and demand.
Anyway, if you’re the chief operating officer of a company and you get a call from your distribution partners telling you that customers can’t get enough of your product and asking if you can increase production, that’s usually a very good problem to have and you would think that perhaps the answer should be an automatic, ‘Yes!’1. You spent no additional dollars on marketing and yet demand is up. You should apply additional resources to increase supply so you can meet demand. You want to make customers happy, right?
The Carthusians
The Carthusians are an ancient Latin Catholic religious order dating back to the eleventh century. I first became familiar with the Carthusians when I studied abroad in Austria during the spring of 2005. The place where we lived and had classes (Kartause Gaming, pictured above) was a renovated monastery that had been abandoned by the Carthusians during World War II. There weren’t any Carthusians around when I was there, sadly.
As a contemplative monastic order, the Carthusians have a focus on solitude and silence. Coincidentally, when I was headed to my retreat a few weeks back, I listened to an audiobook of The Power of Silence, which centers on the monks of the La Grand Chartreux, the same monks that are famous for producing Chartreuse liqueur.
What supply?
From the outside, if the only way you know of the monks of the Grand Chartreuse is through the tasty green alcoholic beverage they produce, you might frame your relationship with the monks as one of customer and supplier. You could be forgiven for being a little frustrated if your local liquor store runs out of Chartreuse because the monks in the French alps have decided not to respond to the increase in demand and produce more bottles of liqueur. Customers have demanded more—isn’t it the monastery’s job to increase supply to match the increase in demand?
The monks seem to be responding to different, er, demands, on their time. From the article:
The herbal liqueur Chartreuse, long made by the community, has been in short supply in drinking establishments far and wide. The mystery has been solved, and it is bittersweet. It turns out the secretive monks, who closely guard the recipe for the fluorescent spirit, have chosen to focus more on prayer and solitude over expanding their historic business.
I’m not personally familiar with the daily life of the Carthusians at the Grand Chartreuse monastery, but judging by what they’ve shared on their website, they spend a lot of time in prayer. I’m having trouble following the translation from the French, but I’m estimating it’s about five hours of communal and private prayer during the day and another two hours of prayer in the middle of the night. That’s a lot of demand on their time that has nothing to do with manufacturing a tasty green liqueur. Put another way, there’s not as much supply as it might appear from the outside.
The business-y answer to this—one that’s in line with matching supply and demand—would be that if you’re not going to increase production, you should at least raise prices. Which, fine, maybe the monks can earn a modest surplus to repair the roof while demand is hot. But there’s more to it than that.
Whose demand?
I think the reason I like this story so much is because it’s a clear example of leadership knowing when not to respond to market forces. The monks of La Grand Chartreux are not a business. They don’t exist to sell liqueur. Their vocation is to pray and cultivate an interior life. They engage in business to sustain their vocation, rather than the other way around.
This is a good reminder for us both as individuals and as leaders in business. Even though much of our business operations will be focused on correctly matching supply and demand, there are times we’ll need to say no. Many times those requests will come from someone who isn’t our target customer, so we’ll say no. But other times, we’ll say no because that’s not who we are.
For a business, that means not only knowing the types of customers you will serve (i.e. segmentation). It also means determining how you treat employees, what pace of growth you believe is sustainable, and how you engage with your community.
For an individual, it means knowing your non-negotiables. What are the things you’re not willing to sacrifice?
There’s actually a good business reason why you wouldn’t give an automatic ‘Yes’ here, which is when the demand being reported isn’t the true demand coming from the market. This is amplified by the bullwhip effect, where small increases in demand from consumers creates ripple effects as it moves up the supply chain.
Changes in demand may not match real demand happens any time consumers perceive a shortage and rush to stock up on the product in case it runs out. Consumers aren’t actually consuming the product at a faster rate—it’s just sitting on their shelves at home—but because the product is leaving store shelves at a faster rate, we perceive that demand has increased.
We saw versions of this in the toilet paper shortage at the beginning of the COVID-19 pandemic in 2020 and again in the diaper shortage of 2021. Were people really using that much more toilet paper or were that babies soiling that many more diapers? Aside from slight blips on the supply side—e.g. when consumers spent more time at home than in the office, the type of toilet paper they needed changed—a lot of the bump in perceived demand happened when consumers rushed to stock up on supply at home rather than risk running out. That kind of demand won’t last.