subscribe: Posts | Comments | Email

Report Card on Supply Chain Matters 2014 Predictions for Industry and Global Supply Chains- Part Two

0 comments

We continue with our series of postings reflecting on our 2014 Predictions for Global Supply Chains that we published in December of last year.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008.  We not only publish our annualized ten predictions, but scorecard the projections as this point every year.  After we conclude the scorecard process, we will then unveil our 2015 annual projections for industry supply chains.

As has been our custom, our scoring process will be based on a four point scale.  Four will be the highest score, an indicator that we totally nailed the prediction.  One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.

In our previous Part One posting, we score carded 2014 Projections One and Two.

 

2014 Prediction Three- Continued momentum associated with U.S. and North America based manufacturing.

Self-Rating: 4.0

A year ago, U.S. manufacturing activity as depicted by the Institute of Supply Management (ISM) PMI Index was recorded as 4.2 percentage points higher than the beginning of the year, and 6.2 points higher than the June reading, representing both the highest reading since June of 2011 and increased momentum from other geographic areas. As of this writing, the ISM PMI reading of 59 percent for October represented a 7.7 percentage point increase from the reading reported for January.  Throughout 2014, U.S. supply chain related activity has continued on a steady state.  As of October, 16 of the total 18 tracked industries were reporting growth momentum.

As noted in our original prediction, the continued growth of U.S. manufacturing comes from a number of factors not the least of which have been the ongoing double-digit increases of labor costs in China, increased positive momentum of the U.S. economy and more attractive energy costs throughout North America. . In mid-August, the Boston Consulting Group noted in its report, Shifting Economics of Global Manufacturing, that in some cases, the shifts in relative costs of manufacturing among China and North America are now startling placing Mexico as cheaper low-cost manufacturing alternative.

Specific efforts by Wal-Mart and other retailers and manufacturers concerning significant long-term commitments for sourcing products in the region have helped as well. The most significant development in 2014 concerned hefty manufacturing investments in Mexico, both in supporting North America product demand and as a strategic base of North America based exports to other global regions, particularly for the automotive industry.  Automotive OEM’s BMW, Honda, Mazda, Volkswagen’s Audi Group, and a partnership among Nissan and Daimler had each announced Mexican production sourcing decisions that amounted to billions of dollars of investment.

However, continued U.S. sourcing of U.S. and North America manufacturing continues to uncover gaps in globally competitive component supply chain networks, many of which still reside in Asia or China. This is especially the case in high tech and consumer electronics, footwear, apparel and other industries. Continued momentum is thus increasingly dependent on further re-building of North America based supply ecosystems among multi-industry supply chains.

 

 

2014 Prediction Four- Supply Chain and Manufacturing Talent Management Would Remain a Continual Challenge.

Self-Rating: 3.5

Our prediction declared that supply chain and manufacturing talent acquisition and retention would remain a challenge with considerable joint industry, government, academic, and indeed individual supply chain organizational work to be accomplished. We further predicted that some progress will be made with more innovative approaches and efforts and we had hoped to highlight these throughout the year so other teams can benefit.

In the 2014 Chief Supply Chain Officer survey report conducted by SCM World, supply chain leader respondents pointed to ever more challenges in building and managing supply chain teams over the past two years, nearly double the frustration expressed in 2011. SCM World points to raw recruitment as the most cited problem despite rising interest in supply chain among universities and significant investment in supply chain focused professional organizations. The need for well-rounded generalists possessing broader supply chain functional, business and team collaboration skills seems to remain an important need, with implications for significant job rotation across business areas.  Other executive and industry surveys conducted during 2014 further reinforce building concerns and frustrations regarding talent selection and retention. In August, we highlighted for readers and clients what executive recruiter Hiedrick & Struggles described as the white hot demand for supply chain executives in pharmaceutical industry settings.

Throughout 2014, we searched for continued insights and learning regarding successful ways to approach talent management. We were able to highlight some learning regarding the management of millennials. We noted how professional organizations such as APICS and CSCMP were adding young professional mentorship and global-wide student completion programs to boost career interest in supply chain management.

Although we feel we made good on a relative no-brainer prediction, we did not meet our expectation to provide added industry-wide learning in successful talent management. For this reason, we lowered our self-rating for this prediction and commit to re-double our efforts in 2015.

This concludes Part Two of our report card on our Supply Chain Matters 2014 Global Supply Chain PredictionsStay tuned as we assess the remainder of our 2014 predictions in follow-on postings.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.

 


Report Card on Supply Chain Matters 2014 Predictions for Industry and Global Supply Chains-Part One

0 comments

While global industry supply chain teams continue to work on enabling 2014 operational and business performance objectives, this is the opportunity for Supply Chain Matters to reflect on our 2014 Predictions for Global Supply Chains that we published in December of 2013.

Our research arm, The Ferrari Consulting and Research Group has published annual predictions since our founding in 2008.  We not only publish our annualized predictions, but score our predictions every year.  After we conclude the self-rating process, we will then unveil our 2015 Annual Projections for Industry Supply Chain during the month of December.

As has been our custom, our scoring process will be based on a four point scale.  Four will be the highest score, an indicator that we totally nailed the prediction.  One is the lowest score, an indicator of, what on earth were we thinking? Ratings in the 2-3 range reflect that we probably had the right intent but events turned out different. Admittedly, our self-rating is subjective and readers are welcomed to add their own assessment of our predictions concerning this year.

But now is the time to look back and reflect on what we previously predicted and what actually occurred in 2014.

 

2014 Prediction One: An optimistic yet uncertain global outlook in 2014

Self-Rating: 3.5

Our 2014 prediction concerning industry economic outlook summarized key economic forecasts in late 2013. Based on our review, we believed that the global economy would continue to present an environment of uncertainty in many dimensions, and turned out to be the case. However, we did note that economic forecasts at the time concerning 2014 were a bit more optimistic but come with many cautions or caveats. That turned out to be the case as well.

Both the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) originally forecasted 3.6 percent global-wide for 2014 and both agencies point to notable downside risks. In its early October update, The IMF adjusted its 2014 global growth forecast to 3.3 percent.  The weaker than expected forecast was attributed to setbacks to economic activity in the advanced economies of the Eurozone Japan and Latin America. The agency acknowledged an ongoing higher than expected growth rate for the United States, following a temporary setback in Q1. For the emerging market countries, the IMF scaled back its growth projection for this area to 4.4 percent, while nailing China’s growth rate at a current 7.4 percent rate.

In its mid-September update, the OECD also noted solid growth for the United States with growth strengthening in India, and around trend in Japan and China. That agency also reinforced tepid growth for the Eurozone, but generally reports sub-par world trade growth with a slow pace of improvement in labor markets.

Our own tracking of select global PMI indices further reinforced a mixed global picture with the United States outpacing other regions in production and supply chain activity.  Overall, and as predicted, 2014 has been a challenging for industry S&OP teams to plan, adjust and respond to product demand trends within individual geographic regions.

 

2014 Prediction Two: Stable commodity and supplier prices with certain exceptions

Self-Rating: 3.5

As predicted, commodity costs continued to moderate this year. As of mid-November 2014, the Standard and Poor’s GSCI Commodity Index was down 16.25 percent year-to-date. Prices advanced early in the year as a result of an overly severe winter, drought conditions in Brazil and fear of continued hostilities within the Ukraine. With the exception of the U.S. west coast, U.S. farms recovered from 2013 severe drought conditions and produced record crops of corn and soybeans.

China continues to be the largest consumer of a large variety of commodities and continued moderating growth in that region caused commodity prices to generally slide. Lower global demand caused a general contraction in commodity markets with certain exceptions. Aggregating the overall decline has been a stronger valuation of the U.S. dollar amongst other global currencies.

Exceptions remain in global supplies of coffee and beef, brought about by severe drought conditions, and cocoa, which could be impacted by the current outbreak of Ebola in West Africa.

One of the most significant and noteworthy commodity trends in 2014 remains an overall 23 percent decline in the price of crude oil. At the beginning of this year, the U.S. Energy Information Administration (EIA) had forecasted a 2.8 percent in the price of West Texas Intermediate (WTI) crude oil with a 5.9 percent reduction in the per gallon cost of gasoline and diesel.  At this writing, the price of crude has plunged to the mid-seventy dollar per barrel range.  Retail prices for gasoline have broken through the $3 dollar per gallon barrier, 25 cents lower than a year ago and the lowest in nearly four years. The average price of diesel, currently $3.68 per gallon in the United States, is 16 cents lower than a year ago. Once more, current projections indicate oil prices will range in the $80 to $90 barrel range in 2015. This is all good news for global transportation and industry supply chain networks.

Summing-up, the easing of inbound pricing pressures afforded procurement teams the ability to hopefully turn attention to other important areas including deeper supplier collaboration, sustainability initiatives and joint product innovation.

This concludes Part One of our report card on our Supply Chain Matters 2014 Global Supply Chain PredictionsStay tuned as we assess the remainder of our 2014 predictions in follow-on postings.

Bob Ferrari

©2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Severe Congestion and Paralysis Among U.S. West Coast Ports- Supply Chain Matters Update Four

0 comments

In last week’s Update Three commentary regarding the current crisis involving the near paralysis among the U.S. West Coast ports of Los Angeles and Long Beach, Supply Chain Matters highlighted that conditions on the ground were not showing any signs of improvement.  As this week draws to a close, the situation appears to be deteriorating even more, and now involves clear impacts and continued disruption for both U.S. exports as well as imports.

Last week, the National Retail Federation (NRF) published an editorial with the statement: “The sudden change in tone is alarming and suggests that a shutdown of the ports — either from a walkout by labor or a lockout by management — is imminent.” The NRF has since been joined by other industry associations  including the National Association of Manufacturers (NAM) the U.S. Chamber of Commerce, and 60 other organizations representing agricultural growers.

Agricultural exports such as apples, forest products, potatoes and other crops are now jeopardized.  Growers indicate that Far East buyers are now cancelling orders and moving to alternative sources of supply. According to a report from industry trade group, Agriculture Transportation Coalition, the consequences of the current port congestion are being felt throughout the United States. The railroads are unable to bring agriculture products from the Midwest and the South to West Coast ports because of the port congestion crisis. In addition, ocean carriers continue to attempt to pass on their increased costs by imposing draconian congestion surcharge fees on U.S. exporters and importers.

A published report in American Shipper (registered sign-up or paid subscription) now indicates that formal labor negotiations among the lead negotiators of the international longshoreman’s union and the Pacific Maritime Association (PMA) are currently in recess and not expected to resume until December 2. The publication characterizes this development as: “bad news for importers and exporters hoping for a quick agreement and rapid restoration of normal operations at West Coast ports.”

A new wrinkle concerning labor work stoppages expanded earlier in the week as independent truck drivers contracted by trucking firms serving both ports initiated multi-day job actions seeking fair wages and better working conditions. These job actions expanded to five trucking firms serving the port complex as of Monday.  Truck drivers, mostly hired as independent contractors, have had longstanding grievances with local trucking firms and now the Teamsters labor union has taken the current port crisis as an opportunity to leverage driver demands to be recognized as full-time employees.

We again echo our Supply Chain Matters advice that industry supply chains impacted by the current west coast port disruption should be in full response management mode and seeking alternative options for both imports and exports from these ports.  The situation is such that there appears to be little indication of improvement and further indications of shutdown, lock-out or government imposed mediation. Response time to save holiday revenue budgets is in critical stages, too late to save the Black Friday-Cyber Monday holiday weekend, and essential to save customer December and January holiday fulfillment commitments.

We may well observe that the winners and losers of the 2014 holiday buying surge were those individual industry supply chain teams that demonstrated the most resiliency and responsiveness to the west coast port debacle.

Bob Ferrari


Boeing Initiates Multi-Billion Long-Term Supply Agreement for Carbon Fiber Composite

0 comments

Multi-year supplier contracts often are associated with the need for strategic direct materials. For large enterprises that have the financial resources, they can well provide a source of industry competiveness or edge in supply.

A prime example is provided in aerospace industry as Boeing has just announced a memorandum of agreement with Japan’s Toray Industries for long-term supply of carbon fiber composite material. Once finalized, this contract extension will take effect in 2015.  According to one syndicated report, the contract is estimated to have a value of $8.6B.

This ten year supply agreement represents by Boeing’s words, a significant increase in material provided by Toray. It includes expanded material supply for Boeing’s ongoing 787 Dreamliner production program along with provisions to supply wing structures for the new 777x aircraft development and production program. According to the announcement, the wingspan of the planned 777x measures 22.8 feet longer than the span of today’s 777-300ER, which in-itself is a large commercial aircraft. Further noted was that in 2013, Boeing contracted for more than $4 billion in goods and services sourced within Japan’s aerospace sector suppliers.

A large portion of the future demand for commercial aircraft stems from Asia and Middle East air carriers.  Sourcing strategic materials in these regions assures continuity of product innovation as well as customer related influence.


Severe Congestion at U.S. West Coast Ports- Supply Chain Matters Update Three

0 comments

We are a mere two weeks before the Black Friday holiday shopping kick-off, and a mere six weeks before the actual Christmas holiday and the severe congestion that is crippling U.S. west coast ports essentially remains the same.

In last week’s Supply Chain Matters commentary we described what many are calling the “perfect storm” of supply chain disruption. Another week later, the crisis is cascading across industry and transportation channels, affecting both imports as well as time-sensitive exports.  An NBC News broadcast  in the U.S. notes that as of yesterday, 13 ships are anchored off the coast waiting to be unloaded and describes container shipping at “full stop”. While that may be a bit of journalistic sensationalism, it is descriptive.

The on-the-ground realities seem little changed from last week’s situation.

Public finger-pointing among the ILWU labor union and the Pacific Maritime Association (PMA) has become a public spectacle vs. any perceived constructive progress. Union officials continue to point to chronic shortages of truck chassis, the impact of having to unload far larger container ships and rail bottlenecks. Meanwhile, at least one container shipping line, U.S. Lines, is placing a Port Congestion Surcharge, effective November 17, amounting to $800 for a twenty-foot container and $1000 for a 40-foot container.  That is sure to add additional heartburn for retailers and manufacturers alike.

A published report from the Journal of Commerce reports that air freight forwarders with operations in the Asia Pacific region are observing space shortages with shipping costs rising dramatically. That should not be a complete surprise considering that Apple and other consumer electronics providers had previously locked-up air freight capacity to overcome their own production backlogs.

The National Retail Federation (NRF) continues to lobby for the personal intervention of President Obama but that effort, even if it did occur, is unlikely to relieve the current congestion any time soon.

As we stated last week, regardless of the finger-pointing, the situation is indeed the perfect storm scenario that many had feared and industry supply chains need to deal with the current realities. Noted in this week’s Wal-Mart commentary, retailers have already kicked-off holiday promotional merchandising and are de-emphasizing the singular Black Friday shopping event in favor of a steady stream of promotions extending through the end of November and probably well into December.

Last year, UPS, and to some extent FedEx, were thrown under the proverbial bus by retailers for non-performance at the most critical time period. In 2014, the creditability of west coast ports and indeed the surface shipping industry is inching closer to being the Grinch’s of Christmas.

Bob Ferrari


Maersk Reports Stronger Earnings but Continued Industry Warnings

0 comments

This week, AP Moller-Maersk, parent of global leading ocean container shipping line Maersk reported rather positive Q3 financial results. For the third quarter, the shipping concern reported an overall net earnings increase of 25 percent on flat revenues. However, Maersk did take the opportunity to once again warn its investors of a continuing slowdown in global trade.

Financial highlights for the Maersk Line unit included revenues of $7.1B and profits of $554M. Return on invested capital was 13.5 percent compared with 10.9 percent a year earlier. Volumes increased by 3.7 percent, average rate increased by 0.9 percent while unit costs decreased by 0.9 percent. Fuel costs decreased 2.4 percent from the year earlier period.

According to reporting from the Financial Times (paid subscription or free metered view), aggressive cost cutting and lower use of fuel has made Maersk Line the most profitable in the industry. The publication notes that current operating margin of 10.5 percent is considerably higher than the average of industry rivals.  Once more, Maersk boosted its operating margin over two percentage points in one quarter, and has the opportunity to continue boost future margins through the announced 10 year 2M vessel sharing alliance with rival Mediterranean Shipping Company (MSC).

Maersk CEO is again quoted as indicating that in essence, the glory days of rapid industry growth in containerized trade is over.  Operators must now assume lower single-digit volume growth.

In the midst of continued industry-wide overcapacity and little industry volume growth, Maersk continues to demonstrate that it will aggressively compete for additional business and market-share. In September, Maersk Line announced a renewed ship acquisition program. It announced plans to invest upwards of $3B per year, for the next five years to acquire the equivalent of 30 new 14,000 TEU capacity vessels. That is despite its recent investments and delivery of new Triple-E vessels capable of handling upwards of 18,000 TEU’s. The new acquisition of more technologically advanced and more fuel efficient vessels further provide the opportunity to scrap older, less efficient vessels.

Included in our Supply Chain Matters Predictions for Global Supply Chains for the current year, we forecasted continued industry consolidation in surface transportation. Maersk’s continued financial performance and aggressive competitive stance adds further kindling for the industry’s lower-tied players to make additional moves or be left behind.

Supply Chain Matters will be scorecarding each our 2013 Predictions in the not too distant future.

Bob Ferrari


« Previous Entries