This past August, this author penned a Supply Chain Matters blog commentary: The Newest Phase for Elongated Supplier Payments- More Aggressive Push Back. The essence of that commentary was that with many more multi-industry procurement teams extending supplier payments under the umbrella of working capital savings, suppliers themselves are now more aggressive in pushing back, especially when their own financial performance takes a hit from a key customer. In some cases, such suppliers utilize the threat of supply disruption to force more timely payments.
We cited supplier aggressiveness examples related to AB In-Bev, Boeing, General Motors, Tesco and Volkswagen.
Today, The Wall Street Journal reports (Paid subscription required) on yet another example, this time involving retail firm Sears Holding.
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 announced the suspension of supplying products to retailer K-Mart, part of Sears Holdings. The stated reason, according to reports, was concerns related to the financial health of the retail chain and to minimize risks of not being paid for inventory. While Jakks senior management did not initially disclose the name of the a stated “major retailer”, business media digging confirmed the identity of that retailer.
Normally, supplier pushback on concerns for delayed payments are not extraordinary news. Sears Holding itself has been itself financially challenged as a result of declining sales and profits and subsequent business restructuring and store closings. Sears CEO Edward Lampert had to recently respond to speculation that the K-Mart franchise was about to close in the light of previous decisions to shutter upwards of 130 K-Mart retail stores. In a blog posting featured on the firm’s SHS Holdings blog, Lampert indicated that there are no plans and there have never been any plans to close the Kmart format. He further calls into question whether intended parties seek to do harm to the retailer for other gain.
By our lens, the extraordinary aspect is the overall timing of the supply suspension, coming just before the all-important and business critical holidays fulfillment period. The vast majority of sales related to children’s toys occur during the Christmas holiday season. The other aspect to timing relates to the Wall Street community’s concerns as to whether other key suppliers will take the same actions related to Sears and K-Mart.
The CEO of Jakks indicated to the WSJ that the decision impacted his firm’s financial performance during the recent quarter as revenues fell by 10 percent, and the company’s stock value plunged by 15 percent. Reviewing the toy supplier’s latest third quarter financial results, we indeed noted the citing of suspended sales “to a major customer that is experiencing challenges” but there is mention to other causal factors such as the impact of Brexit and negative foreign currency effects. A balance sheet review indicates that there has been a nearly $109 million increase (63 percent) increase net accounts receivable over the past nine months. Working capital balances have eroded by nearly $24 million over the last year.
On its part, K-Mart management reinforces that it has an active and long-standing relationship with Jakks and that it continues to receive inventory from this supplier. One wonders whether that implies that compromises are already at-play. The SHS Holdings blog further weighed in a blog commentary from is CFO: Just the Facts- Vendor Relationships. It states in-part:
‘We can tell you that we have had a longstanding relationship with Jakks as we do with our tens of thousands of other suppliers and vendors. Despite the speculation and rush to report the negative, we have always paid our vendors for orders we have placed and as part of the normal negotiations between retailers and vendors, there are occasionally disputes over prices, allocations of product and other terms.”
That latter statement regarding occasional disputes can be interpreted in various ways depending on the perspectives of supplier or major customer. The tone of the commentary can have different interpretations as well. The transfer of the burden of working capital management or cash flow ultimately comes with certain consequences which need to be managed.
Regardless, the overall trending of increased supplier aggressiveness is prevalent, especially when such suppliers perceive their own financial and operational harm.
In a number of ongoing editorial commentaries Supply Chain Matters has amplified the growing talent gaps that are today impacting multiple industry supply chains. As more baby boomers reach retirement age, supply chain and procurement executives are looking with trepidation at a looming talent gap. The industry needs an influx of fresh faces, especially professionals drawn from the Millennial generation — people born between 1982 and the early 2000’s.
In May of 2014, The Institute for Supply Management (ISM) and THOMASNET.com conceived and jointly sponsored an initiative titled the 30 Under 30 Rising Supply Chain Stars Program. The stated goal of this program is to advance the future of the supply chain profession thru recognition of up and coming professionals making significant contributions within multi-industry procurement roles.
For each year of this program, we at Supply Chain Matters have been delighted to have the opportunity to provide individual recognition to annual honorees including the recent 2016 complement of rising stars. It has been extraordinary for us to ascertain the level of responsibility, passion and overall leadership that such young professionals have already achieved in their careers, along with their ongoing enthusiasm for gaining job satisfaction in their roles in sourcing, procurement and supply chain management.
We therefore wanted to pass along to our readers that as of this year, the program is now being expanded globally. Current procurement professionals are invited to nominate outstanding practitioners, 30 years old or younger, for broader global recognition. A selection committee in-turn evaluates the nominations to select 30 rising stars.
In addition to now having global recognition, each new rising star will receive complimentary one-year membership in ISM where they can take benefit of the member benefits afforded to procurement professionals. In addition, THOMAS.net will offer winners and their sponsors an all-expense paid trip to the ISM 2017 Annual Conference to be held in Orlando, along with a Supplier Discovery and Evaluation lunch and learn session, customized for their organization and team. There is also the opportunity for some of the designated stars to be profiled and interviewed on this blog for broader supply-chain wide audience recognition.
We want to congratulate the program co-sponsors for the global-wide expansion of the Thirty Under 30 Rising Stars Program.
Further information and access to nomination forms can be obtained at this THOMAS.net web link.
Bob Ferrari, Founder and Executive Editor
This week, noted maritime and shipping industry research firm Drewry Maritime Research declared that the ocean container shipping market has now bottomed out. The recent ongoing Hanjin Shipping bankruptcy and receivership development is noted as representing the trough of the container shipping market and that a gradual market recovery is now expected.
While Supply Chain Matters has great respect for Drewry’s knowledge and research related to the maritime industry, we advise our readers to be somewhat cautious on the conclusions that ocean container transportation volumes and rates will bounce back in 2017.
The firm’s latest research predicts that ocean container shipping lines will record a record $5 billion in operating losses for this year, with industry profitability to recover to a modest $2.5 billion by next year. An important caveat is described as follows:
“However, this anticipated recovery needs to be put into perspective. While average freight rates are expected to improve next year, this will follow several years of negative returns and will still leave pricing well below the average for 2015. A key unknown remains carrier commercial behaviour which has proven unpredictable and counterintuitive. Hanjin’s demise may mark a watershed in this regard, but liner complacency on the risks of insolvency may challenge this notion.”
Obviously the noted caveat should have important meaning for multi-industry shippers and transportation procurement teams since this industry has yet to flush out upwards of 30 percent of excess ship capacity. The industry further must undergo a period of either consolidation via acquisitions or in the acceleration of scrapping older, less efficient vessels.
From our lens, the real caution for shippers to ascertain is whether the largest shipping lines garner much more industry influence through aggressive acquisition of other marginal lines and/or global shipping routes. Drewry’s stated viewpoint is: “Those carriers who can weather the prolonged storm have a chance of emerging the strongest in 2019/20.” That represents a 3-4-year window, a considerable time interval in the dynamic nature of global transportation volumes. Drewry acknowledges that industry players are more focused on maintaining or protecting market share and operating volumes at the expense of contract negotiations.
The other important unknown is how much global based maritime regulators will tolerate for major carriers garnering too much global market share. Up to this point, our impression has been that regulators have taken an industry-friendly perspective, allowing for the continued existence of major shipping line global alliances that pool shipping capacity and global shipping route scheduling. At some point in the not too distant future, geographic based regulators will be forced into determining when multi-industry shipping interests within a specific region will be significantly harmed by consolidation or carrier consolidation events. The ongoing example of Hanjin by our lens, reflects Korean maritime regulators favoring the interests of bankers and financial institutions that now longer could afford to support added debt to Korea’s shipping lines and shipping interests. Similarly, European and other geographic regulatory interests will be facing similar dynamics.
Previous indicators have consistently noted that the ongoing ocean container industry overcapacity condition will prolong itself for at least the next two years. Shippers and global transportation procurement teams re therefore wise to not favor long-term contracting or rate locking. A lot more can and probably will happen in the months to come.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Reports indicated that that an explosion has occurred at the massive BASF chemical production complex in Ludwigshafen Germany.
Initial indications are that two employees have unfortunately lost their lives and two others are currently missing. Six people are reported as seriously injured as a result of the explosion which reportedly occurred on a supply line connecting a harbor and a tank depot on the Ludwigshafen site at around 1120 local time (0920 GMT).
As many our readers may be aware, BASF is one of the largest global manufacturers of chemicals utilized across multi-industry supply chains.The Ludwigshafen site, which is 50 miles south of Frankfurt, is recognized as world’s largest chemical complex, covering an area of 10 square kilometers (four square miles) and employing 39,000 workers.
Reports we are monitoring indicate that production operations have been suspended at the BASF steamcrackers utilized to convert hydrocarbons into other chemicals. According to a published report from The Wall Street Journal, it is believed that the current suspension will initially suspend the supply of raw material chemicals supporting 20 other plants which are either in the process of shutdown or only partially operating.
According to a published report by Reuters, news of the explosion came less than two hours after BASF ad indicated that four people were injured in a gas explosion at its Lampertheim facility, a plant near Ludwigshafen that makes additives for plastics.
Obviously this is troubling news for many industry supply chains, particularly those residing in the Eurozone, and bears continual monitoring for any ongoing disruption of product supply chains.
I am penning this Supply Chain Matters blog commentary on Friday morning as Hurricane Matthew continues to make its way up the Florida coast. This morning, the central eye of this powerful storm is located just off Daytona Beach Florida and continues on its northward path, with a potential threat of a U.S. landfall looming. The U.S. Hurricane Center continues to warn residents in the path of this storm to be not only watchful of the potential of significant wind damage but coastal and river flood surges along with significant amounts of rainfall.
From our lens, sales and operations planning, supply chain planning, operational logistics as well as procurement teams need to pay very close attention to the ongoing and potential effects of this natural disaster since the potential of further supply chain disruption is yet to unfold.
I have been in Orlando Florida this week attending an IBM supply chain focused conference and had the opportunity to hear all of the local and national media coverage of this storm, along with the dire warnings to residents and businesses. This storm presents significant threats as the hurricane makes its way further towards the Southeastern U.S. coastal regions.
We were very fortunate to have been able to catch an early afternoon flight out of Florida yesterday, before the major effects impacted Orlando. However, I already witnessed the activities related to preparedness and emergency response as residents began to expire local food and grocery supplies.
Thus far, this powerful Category 3-4 storm has brought devastation and sadly, the loss of life in Haiti, Cuba and the Bahamas, with more destruction and casualties expected. President Barack Obama has signed federal declarations of emergency for Florida, South Carolina and Georgia, ordering federal aid and allowing federal authorities to coordinate disaster relief efforts in those states. The governors of Florida, Georgia, South Carolina and North Carolina declared emergencies as well, and more than 7,800 National Guard military personnel have been activated or placed on alert to assist civilian agencies in this ongoing emergency. Likewise, the Federal Emergency Management Administration (FEMA) has been marshaling its emergency response teams to the impacted regions. What continues to concern governmental authorities is that the hurricane’s path will soon impact where the land mass begins to curve out from the Florida coast.
The governors of both South Carolina and Georgia have announced mandatory evacuations involving many of these state’s coastal regions because of the expectations of upwards to 7-10 feet of coastal storm surge with rainfalls of up to 10-12 inches in these regio
ns. We attach the latest NOAA visual of expected rainfall amounts.
Both of these states are major transportation and logistics hubs for the U.S. Southeast, a region that now includes the presence many automotive, commercial aerospace and other manufacturing focused firms.
The Port of Savannah, as we all know, is a major U.S. East Coast port and logistics hub serving the broader Southeast region, with container ships navigating up the Savannah River to both access and port, and down the river to exit the port. Likewise, the Port of Charleston serves the region as well. As of his morning, the U.S. Coast Guard has closed both of these ports because of the expectation of the gale force winds generated by this hurricane. Respective Port Authorities have likewise suspended all trucking and ocean container logistics activities directly related to these ports. The ports will remain closed to incoming and outgoing vessels until each respective port captain assesses any damage conditions and changes that status, which is expected to be late Sunday or later.
Keep in mind that both of these ports reside in areas that have been susceptible to heavy coastal flooding and excessive rainfall, especially the Savannah River region. Previous significant storms in these areas have resulted in disruption. Air freight facilities, while located in more inland areas could be impacted by storm conditions and heavy rainfall as well. We are well into the most active period for hurricanes ansd severe storms potentially impacting U.S. East Coast regions.
The timing of this potential disruption is not all that good, coming just prior to the start of the holidays focused retail fulfillment period that begins in about a month’s time. Likewise, automotive and commercial aircraft manufacturers are striving to complete end-of-year or final quarter production commitments.
Thus Supply Chain Matters urges teams to stay abreast of ongoing storm related developments and ascertain if any key suppliers or transportation providers could or have been impacted by the effects of this ongoing hurricane.
We suspect that there will be implications in the days to come and we will keep our readers updated.
Bob Ferrari, Executive Editor