One of the maxims of this blog is, “Suppliers don’t offer their best ideas to their worst customers,” and one of the quickest routes to the category of “worst customer” is stretching out payments to 60, 90 or 120 days — as has been fashionable in the automotive and other industries. We generally applaud the idea of thinking like a CFO when you are a supply manager, but too often the finance-department led idea of pushing the cost of money onto suppliers by delaying payments results in tighter margins for the supply base that stifle reinvestment in equipment or research and development.
Apparently President Obama has come around to our thinking on the topic because he recently endorsed an organization of companies that have pledged to pay suppliers quickly, or help them find lower cost working capital.
In the White House announcement, the Administration claims its QuickPay program of paying small government contractors quickly has saved them $1 billion since 2011. The private business version of the program, called SupplierPay is an opportunity not just to save money, but to create better relationships that foster innovation.
Posted in News Analysis, Supplier Relations
Tagged automotive, cost containment, global business, manufacturing, procurement, purchasing, sourcing, Supplier Relations, supply chain, supply management
The Chinese version of the ISM PMI® has ticked up from negative to positive territory, according to reports such as this one on Bloomberg.com.
A preliminary June Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.8, up from 49.4 in May. An index above 50 signifies expectations of growth, and Chinese leaders are giving themselves credit for stimulating the economy without resorting to drastic measures.
A survey of analysts by Reuters came to a similar conclusion about the growth of the Chinese economy. More reporting of a stronger Chinese economy comes from the South China Morning Post.
We do a significant amount of work in China and the business environment there is unique, but it has matured since the days when U.S. automakers, for instance, were almost demanding that suppliers source from there. Large Chinese companies are not just focused on exports, but meeting growing domestic demand. They are adapting more sophisticated sourcing strategies of their own, and even investing in manufacturing plants in the United States, as described in this article in The Detroit News.
The strength of China’s economy and the rapid change in sophisticated sourcing is evident in increasing demand for development programs, certification programs and alignment with key universities in China.
The maturation of Chinese companies does tend to reduce their cost-competitiveness, but it also introduces elements of stability that mitigate some risks from sourcing at a great distance. Economic indicators that show slow, steady growth are also good signs of stability.
Where are energy prices going? We’re not really sure. A recent forecast reports conflicting information. U.S. crude plunged toward negative daily territory as the Energy Information Administration revealed worse than expected crude and refined products supply figures, signaling a strong bearish outlook. The only bullish sign for oil was that supplies at Cushing, Oklahoma, dropped to the lowest level since October 2009.
Oil tycoon T. Boone Pickens, speaking at the ISM 2014 Annual Conference, suggested that new drilling technologies have radically changed the capacity of the U.S. to produce oil and gas over the long haul. He also said conversion from gasoline to natural gas in transportation fleets will come quicker than anyone else is predicting. He predicted those changes could keep domestic energy prices under control for the foreseeable future.
“An opportunity to hit the accelerator on U.S. auto manufacturing growth” is how Energy Secretary Ernest Moniz characterized the Advanced Technology Vehicles Manufacturing Loan Program (ATVM) and the $16 billion in low-interest financing that is available to support efficient-vehicle programs. While auto suppliers have always been eligible to participate since Congress created the ATVM in 2007, none have secured funding to date. Well, it’s about time the feds recognized that innovation comes from the supply chain as well as OEMs.
Moniz announced in a speech last week that the program is being overhauled to make it easier to fund production of technologies such as lightweight materials, efficient engines and low-friction tires. The changes also include legal clarification to show that suppliers are eligible for the program, a promise to respond more quickly to applicants and the creation of a new on-line application portal.
Roland Hwang, director of the transportation program at the Natural Resources Defense Council, weighed in and said focusing on suppliers is appropriate because automakers are increasingly depending on them to help meet new fuel economy standards, which can strain the suppliers’ finances.
Ford Motor Company, Nissan, Tesla Motors and Fisker Automotive all have participated in the loan program. Auto suppliers, it’s your turn.
Most Americans probably couldn’t locate Crimea without the help of Google Earth. (It’s the peninsula that juts south from the northern coast of the Black Sea.) Nevertheless, the actions of the Russian army in and around Crimea are sending shock waves through some key commodity markets, including oil. Here’s the Washington Post coverage of the story.
Have you felt any effects from the spikes in market prices? Even if you have not, this is another reminder that your supply chains likely have connections around the world that may not be obvious from your first tier suppliers. It’s good practice to map your supply chains and analyze scenarios for disruptions that could happen at any moment.
While the chances of any individual incident might be very small, there are so many potential disruptions that it is quite likely something will go wrong sometime. Smart supply managers build risk management strategies into their planning to accommodate them.
Posted in Commodities, News Analysis, Risk Mitigation
Tagged commodity prices, fuel costs, global business, oil prices, procurement, purchasing, risk management, sourcing, supply chain, supply management
The ISM Manufacturing Index this month showed that the overall U.S. economy has been growing for 55 consecutive months. The manufacturing sector has trended positive for seven straight months. Employment numbers aren’t terrific, but they aren’t terrible either. These are generally favorable signs for business — but they suggest higher pressure on buyers to contain costs. Based on our experience and work with current clients, here are five predictions for the year ahead.
1) Buyers will see increasing pressure on pricing as industries with tight capacity or depressed margins attempt to improve margins.
2) Buyers will find longer lead times and reduced capacity as suppliers have left industries as a result of recession and remaining suppliers are enjoying higher margins based on high demand and low supply.
3) Talent management and development will be critical to the success of supply chain management success.
4) New government regulations in health care, energy, banking and other sectors will increase complexity, compliance and cost.
5) More procurement and supply chain leaders will reach the C suite.
How does this match what you are seeing?
Posted in Commodities, News Analysis, Report on Business
Tagged commodity prices, cost containment, global business, manufacturing, procurement, purchasing, sourcing, supply chain, supply management
If you weren’t already convinced of supply management’s role in developing and driving overall corporate strategies in global companies — take a look at what General Motors just did.
The board of directors for General Motors took a bold step this week by naming a woman as the company’s Chief Executive Officer, replacing Dan Akerson when he retires next month. Here’s the GM News release. Mary Barra will be making history as the first woman to ever lead GM — or any global automaker — as Chairman and CEO, and that’s certain to receive plenty of attention.
It’s also very important to look at her experience because she is a 100% GM insider. Barra rose through the ranks at GM as an engineer and engineering manager, starting as a co-op student at General Motors Institute (now Kettering University). She was named the senior VP for product development in 2011, and a few months ago, also assumed responsibility for GM’s global purchasing and supply chain organization (with a promotion to executive VP).
That last step — tying together global product development with global supply chain sent a very strong signal that GM expects to deliver innovative products through its relationships with suppliers. Selecting the executive holding that dual position as the CEO over others who have managed brands or regional operations says a lot about GM’s strategy for the future.