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Procurement Action Against Inflation

How purchasing managers, commodity managers , sourcing leaders are taking actions related to inflation and continued uncertainty.

Inflation is one of the important problem of all procurement professionals minds right now. US Inflation Rate is at 8.52%, compared to 9.06% last month and 5.37% last year. This is higher than the long term average of 3.26%. Euro area annual consumer inflation jumped to a new record high of 9.1% in August, according to a flash estimate from the EU’s statistical office on Wednesday. The figure was up from 8.9% in July, Eurostat data showed.

Inflation has forced purchasing managers, commodity managers , sourcing leaders to take action, What are these actions?

1.Finding new suppliers to lower costs

2. Establish price change mechanisms.

3.Renegotiating contracts with existing suppliers

4. Understand your major cost drivers like Direct material · Direct labour · Manufacturing overhead · General selling & administrative · Profit

Fighting against rising inflation is not an easy job. However, by creating risk management strategies and strong supplier relationships in place, procurement managers can minimize high Inflation rate risks.

Agile Sourcing

Agile methodology is a project management technique born out of software development.

Agile procurement is an altenative tool in the procurement toolbox, to be utilised for the right projects at the right time.

Agile sourcing is using of agile principles to make sourcing processes faster and more effective.

Traditional procurement works on classical rules. Most of the time,decisions are not fast and is taking time.

Traditional procurement involves fixed deliverables, extensive documentation and a comprehensive project plan.

In an agile approach, you need to have frequent communication and collaboration during the supplier selection process.

Step 1 : Build a cross functional team involving all people that have impact in the vendor selection process, and those who will have to work day to day with the future team.

Step 2: Establish common goals and inform pre-selected vendors related to new selection process.Send out the presentation agenda and guidelines in advance.

Step 3: Run the selection workshop . All vendors came with the commercial and technical team that would actually work with you and required people that could build a proposal and decide on prices.

Step 4 : At the conclusion of the presentations and after your review, present the selected supplier. The decision was taken and announced to all vendors at the end of workshop. Contract is drafted, negotiated and signed.

ASML

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ASML Holding net worth as of August 05, 2022 is $236.57B. Dutch firm makes the machines that make semiconductors.

Each one costs $160m and are a bottleneck for chipmakers, who look to spend over $100 billion in the coming years to build different fabrication plants to meet demand.

According to ASML’s annual report, its key customers are TSMC, Samsung and Intel. Additionally, its revenue breakdown by region has Taiwan, South Korea, and the US at 34%, 30% and 12% respectively, corresponding to the locations of TSMC, Samsung and Intel.

Its key product is an extreme ultraviolet lithography (EUV) machine, which uses advanced light technology to “print” tiny circuits onto Silicon wafers. Only ~40 are made a year and ASML has a near monopoly on the machine technology

ASML Holding annual revenue for 2021 was $22.019B, a 37.9% increase from 2020. ASML Holding annual revenue for 2020 was $15.968B, a 20.62% increase from 2019.

Supply chain tokens

Supply chain projects like OriginTrail, Waltonchain and Wabi have rallied in excess of 250% as blockchain interoperability comes into focus.

Over the last few weeks, blockchain projects focused on supply chains and logistics have seen tremendous growth as the coronavirus-induced economic gridlock begins to loosen and future concerns related to the global pandemic subside.

TRAC

OriginTrail is a self-described “ecosystem dedicated to making global supply chains work together by enabling a universal, collaborative and trusted data exchange.”

The project was established in 2011 with the goal of providing enterprise users with the ability to streamline their supply chains with added data protection and item tracking features.

Currently, the project has partnerships with big-name companies like Microsoft, Walmart and Oracle.

WTC

Waltonchain is focused on creating an ecosystem that combines blockchain, RFID technology and the Internet of Things in order to enhance operational efficiency for supply chain use cases.

One recent major development that may have kicked off WTC’s current rally was the successful upgrade of the protocol’s cross-chain center, which enables interactions between data on different blockchains, including Ethereum and Fabric.

Waltonchain is another supply chain-focused protocol 

WABI

Wabi is a supply chain ecosystem that connects brands and consumers by enabling the seamless, fair, confidential exchange of information.

Currently, the protocol is preparing to launch a new business-to-business marketing solution with a focus on markets based in Asia. 

The reopening of supply chains after a year of disruptions brought on by the COVID-19 pandemic appears to be the most significant factor connected to the future success of Wabi and other supply chain and logistics-focused platforms.

On a sectorwide level, interoperability with other blockchain platforms has been one of the primary drivers of the rally among supply chain projects in 2021. As the global economy begins to open back up and supplychains are reestablished, platforms that facilitate smooth global trade could see further upside. 

source: https://cointelegraph.com/news/supply-chain-tokens-see-triple-digit-gains-as-the-global-economy-recovers

Foot Locker cites port congestion for nearly 24% drop in inventory

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  • Foot Locker is working to reroute its cargo in an attempt to avoid port congestion. Port delays reached two to three weeks in some cases and affected the company’s inventory levels in Q4, CEO Dick Johnson said on the company’s most recent earnings call.
  • Chief Financial Officer Lauren Peters said port congestion was one of the issues, along with store closures, that led to a 2.7% year-over-year drop in sales in the quarter.
  • “Once the product gets into our portion of the supply chain, you know I feel really confident that our team can move through the inventory and get it in the right place very quickly,” Dick Johnson said. “We think that [inventory] will start to normalize over the quarter.

Foot Locker’s inventory was down 23.6% at the end of Q4, as port delays have lengthened lead times for shippers and bottlenecked cargo.

“With respect to our inventory position, although we achieved our goal of being at a healthy composition by the end of the fiscal year, our levels are lower than we would like,” Peters said.

Dick Johnson said the company is working to improve its inventory as it expects to see strong demand in the quarter — especially given the stimulus bill that passed after the company’s earnings call.

“We’re working with our vendor partners to look for alternative routing,” Dick Johnson said in relation to port congestion and inventory levels.

Figuring out alternative ports of entry is a step multiple shippers are taking to avoid congestion at gateways, such as the ports of Los Angeles and Long Beach.

Source: https://www.supplychaindive.com/news/foot-locker-port-congestion-inventory-retail-ocean-shipping/596270/

Israeli startup takes 3D printing out of the workshop and into the factory

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In America, where dentists are turning to digital technology to provide better services for patients, refrigerator-sized machines created by Israeli startup Nexa3D print dental retainers, night guards and other accessories that used to require multiple molds of patients’ teeth and hours of lab work. The new method is faster and often results in better-fitting products.

Nexa3D’s NXE400 ultra-fast printer increases productivity by 20 times compared to competitors and is set to transform 3D printing from a tool for prototype designers to a fully fledged industrial machine operating at production scale. The step change promises to transform the 3D printing industry in the same way broadband internet replaced dial-up.

Dentistry is just a small part of Nexa3D’s business, which spans carmakers, entertainment and industry. In a matter of hours, Nexa3D’s printers in factories around the world, aided by innovative software, transform soft resin into car parts, protective face shields, drones and countless other objects.

When BMW opened its Additive Manufacturing Campus in June 2020, a NXE400 was prominently on display

Additive manufacturing is already an integral part of our worldwide production system today, and established in our digitalisation strategy,” said BMW’s Milan Nedeljković. “In the future, new technologies of this kind will shorten production times even further and allow us to benefit even more fully from the potential of toolless manufacturing.”

The sector is becoming a hot target for investors. Desktop Metal, which specializes in 3D printing of metal and composite parts, went public via a $2.5 billion SPAC in December and is now valued at more than $5 billion. Two more companies, 3D Hubs and EnvisionTEC, were acquired in January 2021.

German manufacturing giant Siemens signed a partnership deal with Nexa3D in September, and will soon begin integrating the printers into its factories.

“We are very pleased to join forces with Nexa3D and together unleash the power and potential of our products to create more resilient and sustainable supply chains,” said Tim Bell, head of Additive Manufacturing at Siemens.

source :https://www.timesofisrael.com/spotlight/israeli-startup-takes-3d-printing-out-of-the-workshop-and-into-the-factory/

Three Uses Of Automation Within Supply Chain 4.0

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The increased availability of advanced technologies has revolutionized the traditional supply chain model. Supply Chain 4.0 responds to modern customer expectations by relying heavily on the Internet of Things (IoT), advanced robotics, big data analytics, and blockchain. These tools enable automation and thus give organizations a chance to close information gaps and optimally match supply and demand.

Industry giants like Netflix, Tesla, UPS, Amazon, and Microsoft rely heavily on automation within their supply chain to lead their respective industries. Let us take a closer look at three powerful automation use cases.

1. Managing demand uncertainty

A painful aspect of supply chain ecosystems is the demand uncertainty and the inability to accurately forecast demand. Generally, this leads to a set of performance issues, from increased operational cost to excess inventory and suboptimal production capacity. Automation tools can forecast demand, remove uncertainty from the equation, and thus improve operational efficiency at each step along the supply chain.

Big data analytics is an established tool that helps organizations manage demand uncertainty. It consists of data collection & aggregation infrastructure combined with powerful ML algorithms, designed to forecast demand based on historical (or even real-time) data. Modern storage solutions (such as data lakes) make it possible to aggregate data from a variety of sources: market trends, competitor information, and consumer preferences. 

Machine learning(ML) algorithms continually analyze this rich data to find new patterns, improve the accuracy of demand forecasting, and enhance operational efficiency. This is the recipe that Amazon uses to predict demand for a product before it is purchased and stocked in their warehouse. By examining tweets and posts on websites and social media, they understand customer sentiments about products and have a data-based way to model demand uncertainty. 

The good news is that such powerful analytics tools are not restricted to industry giants anymore. Out-of-the-box solutions (such as Amazon Forecast) make such capabilities widely available to all organizations that wish to handle demand uncertainty. 

2. Managing process uncertainties

Organizations operating in today’s supply chain industry need to handle increasingly complex logistic processes. The competitive environment, together with ever-increasing customer expectations make it imperative to minimize uncertainties across all areas of supply chain management

3. Synchronization among supply chain partners and customers

Digital supply chains are characterized by synchronization among hundreds of departments, vendors, suppliers, and customers. In order to orchestrate activities all the way from planning to execution, supply chains require information to be collected, analyzed, and utilized in real-time. A sure way to achieve a fully synchronized supply chain is to leverage the power of automation. 

source:
https://www.unite.ai/three-uses-of-automation-within-supply-chain-4-0/


Northvolt becomes 3rd battery cell supplier to BMW

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The BMW Group has signed a long-term supply contract for battery cells with the Swedish company Northvolt. The deal is worth two billion euros. Northvolt will start manufacturing the cells in 2024 in its Gigafactory in Skellefteå, currently under construction.

The Swedish company is already the third supplier to the Munich company after CATL and Samsung SDI. For BMW, the multi-supplier strategy is to establish global competition within the Group’s network, according to press information. Andreas Wendt, member of the Board of Management of BMW AG responsible for Purchasing and Supplier Network, explains this way, they ensure “we always have access to the best possible cell technology”.

BMW said nothing about the term of the contract with Northvolt, which also supplies Volkswagen. The Nortvolt-Volkswagen deal sees them building a cell factory in Salzgitter at the moment. BMW, however, only assembles the batteries for its electric vehicles at its facilities in Germany, China, the US and Thailand, but buys the cells from said partners.

source: www.electrive.com

How Procurement Can Help Reduce Supply Chain Risk

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The modern supply chain is facing some unprecedented challenges right now, and procurement is in a prime position to be able to help solve some of these issues while also reducing overall supply chain risk for their organizations. In “Risk, resilience, and rebalancing in global value chains,” McKinsey Global Institute covers a lot of ground on the supply chain risk front, but also singles out a few key realities that companies are facing and the steps they can take to mitigate risk.

After analyzing 23 different industry value chains to assess their exposure to specific types of shocks, the research firm found that supply chain “shock” varies according to industry. Aerospace and semiconductors, for example, are susceptible to cyberattacks and trade disputes, because of their high level of digitization, R&D, capital intensity and exposure to digital data flows.

Some of the key procurement-related findings in McKinsey’s report include:

  • Shocks inevitably seem to exploit the weak spots within broader value chains and specific companies. “An organization’s supply chain operations can be a source of vulnerability or resilience,” it points out, “depending on its effectiveness in monitoring risk, implementing mitigation strategies, and establishing business continuity plans.”
  • Some of these vulnerabilities are inherent to a given industry; the perishability of food and agricultural products, for example, means that the associated value chains are highly vulnerable to delivery delays and spoilage.
  • Industries with unpredictable, seasonal and cyclical demand also face particular challenges. Makers of electronics must adapt to relatively short product lifecycles, and they cannot afford to miss spikes in consumer spending during limited holiday windows.
  • Other vulnerabilities are the consequence of intentional decisions, such as how much inventory a company chooses to carry, the complexity of its product portfolio, the number of unique SKUs in its supply chain, and the amount of debt or insurance it carries. Changing these decisions can reduce—or increase—vulnerability to shocks.
  • Companies’ supplier networks vary in ways that can shape their vulnerability. For example, spending concentrated among just a few suppliers may make it easier to manage them, but it also heightens vulnerability should anything happen to them.

Complexity isn’t a Weakness

Buyers should also understand that supply chain vulnerabilities often stem from the structure of supplier networks in a given value chain. “Complexity itself is not necessarily a weakness to the extent that it provides companies with redundancies and flexibility,” McKinsey points out, “But sometimes the balance can tip. Complex networks may become opaque, obscuring vulnerabilities and interdependencies.”

For example, a large, multinational company may procure goods from hundreds of different tier-one suppliers. Each of those tier-one suppliers in turn can rely on hundreds of tier-two suppliers. “The entire supplier ecosystem associated with a large company can encompass tens of thousands of companies around the world when the deepest tiers are included,” McKinsey points out.

Finally, the number of tiers of participating suppliers can hinder visibility and make it difficult to spot emergent risks. As a result, “suppliers that are dependent on a single customer can cause issues when demand shocks cascade through a value chain,” the firm notes.

Improving Resilience

On a positive note, McKinsey says that 93% of supply chain leaders are currently taking steps to make their supply chains more resilient. Some of the strategies they’re using include:

  • Building in redundancy across suppliers
  • Nearshoring their manufacturing operations
  • Reducing the number of unique parts that they use to build their products
  • Regionalizing their supply chains

“Most companies are still in the early stages of their efforts to connect the entire value chain with a seamless flow of data,” says McKinsey, which sees digital as a vehicle that can deliver “major benefits to efficiency and transparency that are yet to be fully realized.”

source: https://www.sourcetoday.com/

Lego is making 13,000 face visors

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Denmark-based toymaker Lego recently announced on Instagram that it had begun producing protective visors for front-line healthcare workers in its home country.

The company has modified some of its molding machines to manufacture Personal Protective Equipment (PPE).

This week we began to make visors at our factory in Billund for healthcare workers on the frontline in Denmark,” the company said. “We are so incredibly proud of the team who made this happen.”

The visors have a simple design, which was drafted out by Lego employees with the help of representatives from Denmark’s healthcare sector.

source
https://www.businessinsider.com/lego-goggles-protective-a-day-for-coronavirus-outbreak-ppe-2020-4