Kategori arşivi: Supply Chain

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.

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/

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/


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/

Global or Local Sourcing

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Strategic sourcing has become an extremely important element to the growth of any company. In order to stay competitive, companies need to constantly ensure the right level of coordination between innovation, organisational efficiency, price policy and procurement.

There appears to be a growing trend towards global sourcing; companies are constantly seeking to find the next low cost procurement option in order to gain an advantage over its competitors.

However there is a second narrative; local sourcing. Recently, more and more arguments are springing up about the immense benefits associated with sourcing locally. This narrative therefore begs the question; is local sourcing not the better option?

We will take a critical look at both sourcing techniques and see which option will better serve our organization’s procurement needs

Arguments against global sourcing

  1. Transport costs

With transport costs growing and with constantly changing demand patterns, organisations need to find smarter ways to become more responsive to customer needs and in a cost effective manner.

In recent times, oil prices have seen significant rises in price; reaching an all time high of approximately US$147 per in July 2008. While the prices have recently crashed to approximately US$60, the longer term price curve is likely to continue in the upward direction and it is worthy of note that for every one dollar rise in oil, there is a corresponding increase in the costs of transportation.  Therefore, unless there are new discoveries of ways to go around this, prices of things will continue to rise.

  1. Supply chain risk

There are also several risks that are inherent in extended supply chains that are detrimental to the growth of any business. Risks such as;

  • Extended lead times
  • Exchange rate risks which affects products pricing
  • Variable lead times in the supply chain, leading to a high level of uncertainty and inconsistency.
  • Loss of control
  • Reputational risk
  1. Loss of agility

Extended supply lines usually have adverse impacts on both time-to-market for new products and the responsiveness of suppliers to customer demand changes. Organisations are unable to quickly respond to significant changes in the market due to the extended lead times. Likewise these extended lead times tend to make organizations unjustifiably exploit larger economies of scale thereby leading to overstocking of supplies which also affects their response time to market innovations.

  1. Sustainability

Global sourcing’s increased need for transport has also impacted negatively on the world’s carbon footprint. Globalization only ends up exporting domestic carbon footprint to countries elsewhere and at an increased rate

In addition

There is an increased risk in the loss of intellectual property rights as there is often less legislative protection or enforcement in developing countries

The argument for Global Sourcing

The rising trend towards global sourcing is probably an inevitable on due mostly to man’s natural instinct to trade, seek options, explore alternatives and find new ways of doing things. Coupled with recent advances in communications and technology, it appears as if global sourcing practices have only just begun to shape the procurement world.

Some of the arguments for the huge importance of global sourcing practices include;

  1. We need Global sourcing to sustain our way of life

The constant rise in world population and the diminishing rate of resources to cater for this growing population has largely impacted the need for globalization in trade (procurement) and all other aspects of human endeavor. Nations who are in deficit will continue to look to other nations where items to be procured are in surplus and are readily available.

  1. The most sustainable option may not be the obvious one

Local sourcing may appear more sustainable but there are a number of documented cases where global sourcing has been found to have less impact on the environment. Conditions such as favorable weather conditions, vegetation, technology, availability of labor and work ethics might actually have significant positive impacts on manufacturing and production thereby leading to less carbon footprints than when sparsely produced

 

  1. Innovation can provide the solution to issues arising from global trading

It is highly possible to use innovative technology to combat the environmental challenges of global trade. Significant advancements in technology in most industrialized markets have aided the creation of breakthrough energy solutions which offers a new model for bringing lasting energy solutions that are reliable, affordable and doesn’t emit greenhouse gas. This trend has facilitated the growth of global industry.

Today there are thousands of individuals and companies across the globe working hard to harvest different kinds of clean energy in order to change the way we produce goods & services and in many cases, these experiments have been very successful.

  1. Global Sourcing Promotes Peace

There is also an interesting argument that global trade promotes peace among nations. Nations that trade together are unlikely to go to war with each other.

Conclusion

In arriving at a decision on what sourcing strategy to adopt, the points listed above need to be taken into consideration when comparing between global or local sourcing strategies. Whether local or global, neither of the two are inherently right or wrong, it is only a matter of carrying out careful analysis of both sourcing techniques with respect to your company’s procurement needs and selecting that which is more suitable to meet those needs. Wrong sourcing decisions can cost you valuable time and money