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Rapidly Changing Skills and Requirements in Procurement- Consider Attending ISM 2017


Included in our 2017 Predictions for Industry and Global Supply Chains (Available for complimentary downloading in our Supply Chain Matters Research Center), there are two specific predictions that will directly impact various industry supply chain sourcing and procurement professionals in the coming months.

We predict that the role of the Chief Procurement Officer (CPO) will continue to evolve in 2017, with an emphasis towards strategic advisor skills.  That will likely include analyzing the impacts to a rapidly changing global supply chain sourcing picture, added supply chain risk factors, and needs for higher levels of joint innovation from suppliers. A challenge for sourcing teams among U.S. based manufacturing, retail, or services firms will be educating senior management on the implications of any potential tariffs, import taxes or trade barriers brought about by the new Trump Administration and a Republican Party dominated U.S. Congress. In prior blog commentaries, we have advised teams to be prepared for a year of continual supply chain analysis and scenario-based planning exercises. We brought reinforcement to messages and advisory actions from strategic consulting firm KPMG and contract manufacturing services provider Flex indicating that planning scenarios are already underway among various industry sectors, all trying to more precisely determine impacts to business margins, product strategies, or existing and future component or finished goods manufacturing strategies.

We declared that one of the most significant challenges in 2017 will be in procurement skills development and filling-in skill gaps as procurement’s role moves deeper toward a strategic advisory role.  Increasingly, a fully integrated strategic sourcing and procurement process will become necessary and that will likely require augmented investments in technology and associated team skills beyond singular procurement business processes. The function will be called upon to broaden collaboration and decision analysis efforts with product management and key global and domestic suppliers.  Initiatives directed toward regulatory compliance changes, ongoing supply chain sustainability initiatives and changing contracted indirect services needs will require teams to increase collaboration efforts with other supply chain and business functions.

This challenge is not confined solely to procurement but across many other manufacturing, supply chain, IT, and product management areas. So much so that we have included Prediction Three- A Supply Chain Talent Perfect Storm within our ten 2017 predictions.

The Institute for Supply Management (ISM) serves as the principal professional organization for procurement. In March of 2016, we had the opportunity to interview Tom Derry, CEO of ISM.  Regarding the topic of skills development, the following was stated:

The responsibilities and scope of procurement are changing rather rapidly and there is a need to constantly stay current. To be effective, procurement professionals need to understand the broader capabilities of the supply chain such as planning, logistics and transportation. A procurement professional does not necessarily need to be an overall expert, but should be knowledgeable to the needed capabilities and impacts of decisions across the entire supply chain.”ISM2017

In just about two months, ISM will be conducting its annual 2017 conference which will be held May 21-24, 2017 at the Disney Coronado Resort in Orlando Florida.

Featured keynote speakers will include former UK Prime Minister David Cameron, and former Chairman of the Joint Chiefs of Staff, General Colin L. Powell, USA (Ret.).  The agenda notes that Mr. Cameron promises to deliver a riveting and eye-opening firsthand account of his own experiences during his tenure as Prime Minister, including lead-up to the Brexit decision. That will include his unique perspective on current geopolitical and public policy issues, many of which impact global business and the supply chain. He will further address a range of events in Europe and worldwide, and what they could mean to procurement professionals. General Powell will speak to armed conflict-the ultimate challenge to supply and logistics, as well as the leadership traits included in his recent book: It Worked for me In Life and Leadership.

A total of 73 sessions will be offered based on various skill development levels ranging from fundamental to mastery level. Learning tracts include Economic, Business and Professional segments along with various Experience segments including the very successful Emerging Professionals Experience sessions. This author and supply chain industry analyst had the opportunity to attend last year’s ISM 2016 annual conference and the sessions I sat in were very educational and insightful. Two subsequent prior Supply Chain Matters postings highlighted a fascinating session: What Private Equity Expects from Sourcing Leaders, and highlights of interviews with ISM CEO Dom Derry and others on changing procurement skill needs.

Please consider joining me in attending ISM 2017. The full agenda and registration information for the ISM 2017 Annual Conference can be obtained by clicking on this dedicated ISM 2017 conference web site link or by clicking on the conference logo appearing in our Upcoming Conferences panel to the right.

Supply Chain Matters readers should take note that ISM is currently offering a $400 registration discount if registration is completed by March 30, so consider acting sooner than later.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

A Statement That Evokes Special Concerns and Actions Within Retail Supply Chains


Earlier this week, Sears Holdings, operator of Sears and Kmart branded retail stores in issuing what is termed a “going-concern” warning to the company’s investors, evoked special, and added concerns among its supply chain partners. In its annual report, the retailer indicated “substantial doubt exists related to the company’s ability to continue as a going concern.”

That message alone precipitated a 12 percent selloff in the company’s stock on the news of this statement.

The retailer’s CFO moved to calm the waters in a blog post that indicated that such a disclosure was in line with new FASB regulatory reporting requirements and did not reflect management’s expectations for the near-term health of its business operations. Declared was that “We (Sears Holdings) are a viable business that can meet its financial and other obligations for the forseseeable future.”

Unfortunately, this week’s required statement will cause other reactions and added concerns.

After several years of cumulative billion dollar operating losses coupled with selling off valued real estate and associated branded businesses such as Lands End, Sears Hardware Stores and the Craftman’s tool brand itself to compensate for operating losses and maintain working capital needs, landlords, suppliers, services provider and indeed, consumers, will make individual judgements.

Any of our readers who have experienced similar types of financially strained environments can well relate to how quickly the supply chain begins to respond to financially concerning news regarding a key customer’s ability to pay debts. They do so because in retail, suppliers take on a considerable burden in inventory ownership and elongated payments for such inventory. Recent actual bankruptcy declarations from other retailers such as Sports Authority in 2016, had certain suppliers scrambling to recover existing consigned inventory located in actual stores. The controlling private equity owners of that retail chain filed lawsuits with more than 160 suppliers challenging supplier claims to consigned inventories. According to reports at the time, upwards of $85 million in shoes and other gear that were on the shelves in retail stores were contested. The supplier lawsuits were a means to challenge who gets the bulk of compensation when consigned goods are sold in store closings or in discounted sales. Courts subsequently ruled in favor of some supplier claims.

In an October 2016 blog posting, we called Supply Chain Matters reader attention to Jakks Pacific, the fifth largest designer and marketer of toys and consumer products featuring a wide range of popular branded products and children’s toy licenses, announcing the suspension of supplying products to retailer Kmart. The stated reason was concerns related to the financial health of the retail chain and to minimize risks of not being paid for inventory. Yesterday, a published report by Reuters indicates that suppliers are doubling down on defensive measures including reducing unit shipments, asking for better, or up-front payment terms or refusing to accept expanded volume orders. In one example cited, a Bangladesh apparel firm, working on production needs for the 2017 holiday period later this year, has already scaled-back production lines working on Sears orders. Insurance companies that once provided policies to Sears vendors to protect for nonpayment are no longer doing so.

Suppliers become very concerned and word spreads to transportation and logistics providers supporting a financially distressed retailer. Inventory, and inventory movement becomes static or disrupted.  If readers have had the opportunity to visit a Sears store recently, as we have, you may have noticed that holiday merchandise such as jewelry and shoes from the past holiday season remains in stores, yet to move off the shelves, despite markdowns.

And so, it goes in a cascading sequence of events.

Sears Holdings may indeed have a viable plan to mitigate and resolve its latest warning, but that plan needs to address managing the effects among its retail supply chain.

In the end, consumers and shoppers will serve as the ultimate judge and make their own judgements regarding Sears and Kmart. Obviously, the financial numbers would indicate that some consumers have turned elsewhere.

Suppliers and trading partners should not be faulted for protecting their own financial interests, especially in light of today’s retail industry environment of consumer’s permanent shifts towards online buying. Bankruptcy declarations among retailers have taken yet another toll since the 2016 holiday period.

Once or twice burned, the new word for suppliers vigilant and protective to self-needs.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Additional Report Indicating Apple to Begin Manufacturing iPhones in India


In late January, Supply Chain Matters called attention to a published report by The Wall Street Journal, citing local government sources, indicating that global smartphone and consumer electronics provider Apple was nearing a deal to manufacture its products locally in India.  The Wall Street Journal is now reporting (Paid subscription required) that production could begin in a matter of 4-6 weeks.  Apple Logo

This latest update indicates that Taiwanese contract manufacturing services provider Wistron will likely manage local manufacturing of iPhone6 and 6S smartphones from an existing production facility located in Bangalore. The facility will add production on the entry level SE model in three months, according to this report. An Apple spokesperson acknowledged to the WSJ that the company was working hard to deploy operations in the country but declined to elaborate further.

The latest report brings forth added information implying that a broader manufacturing and supply chain strategy may be at-play for Apple, one that is different than the January report.  Noted is that the company is discussing with Indian government officials on its additional desires to add various smartphone component manufacturers into India as well to support final assembly as well as export of finished products to other countries. The previous indication was that component parts would be imported from China and the United States. The January report indicated that specific Apple requests included concessions related to tax and tariff exemptions, including a 15-year tax holiday on imports of components and equipment. A new reference is made to Apple CEO Tim Cook’s recent call with analysts where a statement was made that the company intends to invest significantly in India.

From our lens, this added information implies potential moves toward a new segmented supply chain strategy that can possibly reduce the overall production costs for certain iPhone models, making them more price affordable for emerging Asian based consumers. It further implies a shift from a sole dependence on a China-centric supply chain and manufacturing value-added strategy.

With a reported 2 percent of existing market-share within India, Apple has a long way to go to penetrate the second largest consumer smartphone market beyond China.

We do raise a cautionary note however, since most the current information is emanating from state or local government officials as opposed to the government itself. That implies that a lot of back and forth discussions remain in terms of overall cost and regulatory concessions to be granted by the government, not to mention any additional political fallout to existing manufacturers in the country.

As we opined in January, if local, and now, perhaps export based manufacturing of Apple products were to be formally announced, we suspected a reaction emanating from the Twitter account of U.S. President Donald Trump. It’s no secret that Trump has Apple in his crosshairs because of the presence of a large number of Apple’s manufacturing employees throughout China. Not to mention that Apple is the most highly watched supply chain among Wall Street investors and consumers themselves.

Thus, perhaps there will not be any formal government of Apple announcements, not until all the components of the evolving manufacturing and supply chain strategy fall into place.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Subpoenas Served on Ocean Container Shipping Line Executives


The Wall Street Journal reported today (Paid subscription required) that U.S. Justice Department investigators crashed an industry Box Club meeting held last week among 20 ocean container shipping firms and served subpoenas to top executives of several lines.

According to the report, people cited as familiar with the investigation indicated that many of the CEO’s at the meeting were given subpoenas. Maersk Line, the unit of A.P. Moller Maersk, and the world’s largest container shipping line confirmed it was subpoenaed. Germany based Hapag-Lloyd also confirmed being served. Both firms indicated to the WSJ that they would cooperate with the investigation.

The report indicates: “The probe is the latest in a series of investigations by regulators around the world into possible price fixing as the largest ocean carriers have grouped into three major alliances, sharing port calls and vessels in an effort to save billions in annual operating costs.

As Supply Chain Matters and others have recently noted, the WSJ report iterates that container shipping rates have spike markedly from levels in 2016. The report cites brokers in Europe and Singapore as indicating that for the Asia to Europe routing, rates have averaged $960 per container this year compared to $695 in 2016. Ship operators have consistently declared that anything below $1400 per container is unsustainable. However, the context of overall industry overcapacity seems to be missing in such a comparison since today’s vessels can haul far more containers per ship.

Drewry Shipping Consultants who tracks such rates, indicated in a recent report that rates on the Europe to Asia shipping lane rose sharply earlier this month, something that Drewry termed “highly unusual” for a traditional backhaul routing. A chief executive of consultancy firm Xeneta, indicated to the WSJ that rates for moving containers from Asia to the U.S. West Coast are up nearly 50 percent from rates negotiated in early 2016.

The report observes that this U.S. Justice Department action is the latest in a series of investigations by agencies in the U.S., the European Union, China, and South Africa.

Where all of this leads to is of-course, the subject of speculation and ongoing investigation. It does, however, by our lens, reflect a growing unease or concern as to the formation of current shipping firm alliances and pooling of capacity, with their associated influences on free market pricing. We have ranted before on such practices and we will leave it at that, given these ongoing developments.

Perhaps the most vulnerable victims to unusual or spiking container shipping rates are the many small and medium sized businesses who cannot take advantage of annual contact and shipping volume rates negotiated by brokers or third-party logistics firms. Thus, unexpectedly high spot market rates can have a significant impact on inventory import and export costs. With the current multi-industry focus on  controlling or reducing supply chain costs, such pricing dynamics do not help in assuring adherence to transportation budgets set just weeks before.

Businesses, transportation procurement and logistics teams need to pay special attention to these ongoing shipping industry developments.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


The Implications of Brexit Grow Near but So Far for Industry Supply Chains


In a published Supply Chain Matters commentary in late June of last year, we explored our initial perspectives of the new term in geopolitical events, that of Brexit. By voting to exit the European Union, the British electorate set off a series of events that many continue to describe as unprecedented.  The most cited analogy remains- “unchartered waters and political events.” Such uncertainly not only surrounds the direct impact on the United Kingdom, but on the EU alliance itself if other select countries take a similar course.

On Monday, Britain’s ambassador to the European Union informed European Council President Donald Tusk that his country would trigger Article 50 of the Lisbon Treaty, the formal mechanism seeking withdrawal, on March 29, a week from today. That starts the clock in a rather complex, two-year window of negotiations between Britain and the 27 other EU member nations and the European Parliament leading to the actual exit. Tusk has asked EU leaders, minus the UK, to meet on April 29 to begin discussions relative to the guidelines for Britain’s exit. In a statement, Mr. Tusk indicated that the main priority for the upcoming negotiations is to create as much certainty and clarity as possible for all citizens, countries, and member states. Supply Chain Matters could certainly suggest adding clarity to industry supply chains to Mr. Tusk’s statement.

Business and broad media all point to the start of some of the most complex negotiations either side has undertaken, with many issues to resolve over the next two years. They include trade and tariff, border security and the movement of goods.

Since the announcement of the results of the referendum, the pound sterling has had a somewhat steady decline in relation to its value with the Euro and the U.S. Dollar. As a rather positive consequence has been increased attraction of British goods among domestic and global markets.  Broad supply chain activity, as reflected by the CIPS UK Manufacturing Index, reached a significantly high value of 56.1 at the end of December, with the report noting that rates of growth in production and new orders were among the best observed over the past two-and-one-half years. Since December, this index has moderated slightly to 55.9 in January, and 54.6 in February, both reflecting healthy activity. Thus, in the short-term, the UK has garnered supply chain economic benefit related to Brexit.

The open question is course, the longer-term picture.

Entering the triggering of Article 50, British Prime Minister Theresa May has advocated for a “clean” break from the EU. She has threatened to walk away from negotiations if Britain did not get the trade deals it was seeking or if the EU tried to impose punitive measures.  She has further indicated that the UK could cut corporate taxes, loosen regulations, and could have a free trade deal with the EU that would include tariff-free access. British media including the Financial Times have interpreted such a stance as to indicate that Britain could transform itself into the low-tax Singapore of the west.  Such declarations appear to not set well with established EU countries.

Thus, a lot will transpire over the coming months and industry supply chain strategies will have find ways to navigate such a geopolitical environment. Most observers tend to believe that new trade agreements between both parties cannot be realistically negotiated and ratified by over 30 various parliaments in two years’ time. In fact, Mrs. May has indicated that the entire body of EU laws will be copied onto British statutes, and then over time modified by negotiation events and outcomes. The Economist noted in its editorials that it has recently taken nearly seven years to secure Canada’s free-trade deal with the EU.

As noted in our original commentary, two major industries dominating UK based manufacturing are automotive and the aerospace industry, the latter being focused primarily in commercial aircraft component manufacturing. Two of the most dominant stakeholder brands of autos are Volkswagen and Tata Motors, followed by Nissan and Toyota. According to Wikipedia, the aerospace industry within the U.K. is the second- or third-largest national aerospace industry in the world, depending upon the method of measurement. The industry employs around 113,000 people directly and around 276,000 indirectly and has an annual turnover of around £25 billion. Domestic companies with a large presence include BAE Systems (the world’s third-largest defense contractor), Britten-Norman, Cobham, GKN, Meggitt, QinetiQ, Rolls-Royce (the world’s second-largest aircraft engine maker), and Ultra Electronics. External companies with a major presence include Boeing, Bombardier, Airbus, Finmeccanica, General Electric, Lockheed Martin, Safran and Thales Group. As indicated in our 2017 predictions, the aerospace industry itself is believed to be reaching a 15-20 year inflection point, one that will be quite different from the past boom years of upwards of 10 year customer order backlogs.

No doubt, the invoking of Article 50 begins a period of discernable uncertainty among specific industry supply chains, related to access to key markets, financial goal performance, engineering, manufacturing, and overall talent capability.

A lot can and undoubtedly will occur, since in today’s clock speed of global business, two years can be a rather long-time, perhaps reflecting a new wave of geopolitical and technology change.

So goes this global environment of uncertainty, implications that seem near but yet so far.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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