State of Procurement/Supply Chain Update - Q2 2020

calyptus consulting group, inc.

Dr. George l. Harris, Principal

• Trade tariffs are still in place. Negotiations with the Chinese haven’t been productive. Rates have slowly increased since mid-2018. What is next. Manufacturer are being forced to pay higher raw material costs since costs have risen for electronics sourced in China.

• Price controls are hard to control. Governments impose controls to redistribute, stabilize or deflate prices. Buffer stocks can protect against volatile commodity prices. This is an ongoing situation in many countries, as 89% of developing countries control prices of energy, 76% control prices of foodstuffs (Bread and rice), and 13% controls prices of construction materials. The results are debatable.

• ISM Manufacturing report, May 2020:

  • Commodities Up in Price: Alcohols; Crude Oil; Freight (2); Personal Protective Equipment (PPE) (2); PPE — Gloves (3); and PPE— Masks (2)

  • Commodities Down in Price: Acrylate Monomers; Aluminum (4); Base Oils; Copper (4); Corn (2); Diesel Fuel (3); Methanol; Nylon; Oil Based Products; Packaging Materials; Plastic Products; Polypropylene; Solvents; Steel; Steel — Carbon; Steel — Cold Rolled; Steel — Hot Rolled (4); Steel — Stainless (2); and Steel Products (2).

  • Commodities in Short Supply: Alcohols; Disinfectants & Soaps (2); Disinfectant Wipes; Hand Sanitizer (3); N95 Masks (2); PPE; PPE — Gloves (3); and PPE — Masks (3).

    • Note: The number of consecutive months the commodity is listed is indicated after each item in commodity information above. The Effect of COVID-19 is upon us.

• The price of Rhodium has skyrocketed, and thieves are stealing catalytic converters. Rhodium is in tight supply due to high demand of the metal to clean up nitrogen oxides, and the market is tight as 80% of the capacity is provided by mines in South Africa. It is hard to control this, so the requirement has to be designed out to have more commonly available materials available.

• Much has been written about the effect of the Coronavirus on global supply chain. The concept of independent demand has not been discussed in the analysis. This type of demand has always been a nemesis of the inventory planner because the demand is not based on any steady known demand or sales forecast, so the shortages in PPE, ventilators, sanitizers, toilet tissue and paper towels can be easily explained.

  Our supply shortages had more to do with managing independent demand than foreign suppliers.

State of Procurement/Supply Chain Update- Q4 2019

Calyptus Consulting Group, Inc.

Dr. George L. Harris, Principal

1. The top 25 supply chain were published by Gartner for 2019. Colgate-Palmolive, Inditex, Nestle, PepsiCo, Cisco Systems, and Inditex were the top performed based on 3 year weighted ROA, inventory turns, 3 year weighted Revenue growth, and corporate social responsibility. These companies should be benchmarked.

2. Car companies in the United States are re-working their supply chains due to the USMCA, the trade deal with Mexico and Canada. Difficulties exist in finding and certifying new suppliers and restructuring plant locations. Points to re-defined supply chains in auto industry

3. ISM Manufacturing report, October 2019: 

   a. Commodities Up in Price

   Corn; Ethylene; Nickel; Polypropylene Resin; Propylene; Steel; and Steel — Stainless.

   b. Commodities Down in Price

   Aluminum (7); Caustic Soda; Copper; Freight; Nylon (2); Solvents; Steel (4); Steel — Carbon; Steel — Hot Rolled (3); Steel — Scrap; Steel Products (10); and Sulfuric Acid.

   c. Commodities in Short Supply

   Electrical Components; Electronic Components (3); and Helium (4).

   Note: The number of consecutive months the commodity is listed is indicated after each item in commodity information above.

4. The average salary for all UK procurement and supply chain professionals has been revealed as £45,159 for 2019, in the CIPS/Hays salary survey results. Some highlights include the average pay reported for a Procurement Manager (£45k), a Procurement Specialist (£37k) and a Procurement Director (£105k) which is a 6.9% increase on 2018. Growth in Procurement Salaries overall in UK is 5.3%, double the national average increase in 2019

5. The Producer Price Index for final demand increased 0.4 percent in October, as the index for final demand services rose 0.3 percent and prices for final demand goods advanced 0.7 percent. The final demand index moved up 1.1 percent for the 12 months ended in October.

Assessment: Two leading indicators, ISM and Federal Reserve ,show decline in manufacturing sector. Electronic components continue to be in short supply. This is a good time to set contracts for steel.