They say it comes in like a lion and March 2018 is no exception. President Trump announced he will apply across-the-board tariffs or import taxes on steel and aluminum. Trump argues that the measures are necessary to protect U.S. national security. Generally, the consensus is the impact of this will be increased prices for consumers of steel and aluminum. While the full impact has not yet been analyzed by many companies while they await the final ruling, category managers for steel, should be building an analysis of capacity, securing domestic supplies and reviewing all contracts to minimize the immediate effect of this action.
Wages are on the rise and the Federal Reserve is conditioning us that interest rates will be rising as the economy heats up. This situation translates to price increases from suppliers who have funded extended payment terms while money was virtually free. Are you prepared?
Many suppliers have an inventory position on steel, so it’s prudent to conduct an analysis of inventory carrying cost vs a 25% increase due to tariffs. This would require a rapid action, should the analysis validate a decision for increased inventory.
When it comes to cost containment, it’s critical to constantly update category portfolios, monitor cost inputs and proactively condition suppliers against raising prices. Savvy category managers keep cost profiles up to date and have data readily available to challenge the price increases to ensure that if increases are warranted, they are pass-through and not an opportunity for suppliers to increase margins.
Many category managers have not lived through a time where sellers have power in the market place. I believe that time is around the corner.
Dust off the cost containment tool kit and prepare for the changing winds.
Are you prepared if the advisory is raised to a warning to batten down the hatches?
As I reflect on 2017, I’m grateful that I’ve had a great year and have met some wonderful people. This year, I’ve worked in the food, aerospace, coatings, chemical, automotive, integrated circuit, engineering/construction, homebuilding, elevator and packaging industries and enjoy the continued learning and insight. My domestic travel was enough to keep top elite status on two airlines, but global travel was down a bit although still I travelled several times to Europe, Asia and Mexico and managed to fly one to my dogs to shows. Lucky for me he fits in a carrier under the seat and is also a seasoned traveler; he was born in Spain and his first flight was trans-Atlantic when he was a puppy. That’s my dog and me in the photo at a show in Wichita last Spring.
I got to see many friends and colleagues this year. It’s always a great experience to see people you’ve taught in classes and mentored in their careers achieving very senior leadership roles in the procurement profession. The profession has been great to me and I feel an obligation to give back to the many professionals and practitioners I’ve have met along the way.
I am looking ahead to 2018 with great enthusiasm and energy as I begin my new role as Vice President, Americas for CIPS (the Chartered Institute of Procurement & Supply) to help meet the increasing demand from corporate clients across the US. This will be an exciting chance for me to support the entire procurement profession with new opportunities to enhance their careers and performance excellence.
I will still support my clients with advanced programs and tools previously unavailable in the US. Thanks to everyone who supported me in 2017, I wish everyone a happy, healthy and prosperous new year!
And I hope my dog and his handler have a successful show career in 2018.
CEOs have significantly increased their demands on the Procurement team. They’re looking for the leader of their team to bring revenue growth, innovation, speed and increased velocity, as well as cost and value improvement. It’s apparent now that the supply chain of the future will be a linkage of integrated, connected suppliers with alignment on business goals and rewarded on value contribution.
With a distributed group of suppliers in a network, supplier selection was easy, however, as we look to the future, supplier selection will be a part of architecting a supply chain. The move to interlinked supply chains will require a great deal of effort and change. Meeting customer demands for increased value, flexibility, speed to market, innovation, development of bitcoin and block chain technology, supply and reputation risk protection, innovation and revenue become the shared responsibility of all the downstream suppliers. The need for transparency and relationship management has never been more important.
Based on the automation of the supply chain, demand for innovation and value and the continuing impact of digital disruption, the top five concerns of the CPO are:
- The speed at which automation, industry consolidation and customer demand for value is changing the traditional supply chain
- The talent needed to drive strategy and process from distributed supply chain thinking to interlinked, real-time supply chains
- Meeting the current need for cost improvement, while transforming the supply chain
- The ability to keep up with technology
- Getting a seat at the table to influence transformation and change
While the short-term needs for cost reduction take priority, those Chief Procurement Officers without a strategy will not survive. The future for procurement and supply chain management is bright if you have the vision and capability to meet the challenges of change.
Will you be a keeper or killer of your business as a going concern?
It is interesting to poll a large audience to see who has a supply chain risk strategy. It’s no surprise that all the hands go up indicating that a supply risk strategy exists and even more interesting to see most of the hands go down when asked how many companies go beyond tier 1 suppliers. The surprising fact is that we do a great deal of due diligence when selecting the suppliers, but the reality is that the risk does not always exist at the direct supplier level. A few weeks ago, I was working in the computer industry with a client who had just mapped the supply chain only to find that all the suppliers had a common source on a component three levels downstream in the supply chain. Without this knowledge, the client and industry had an extreme source of undocumented risk. I’ve heard all excuses for the inability to map supply chain and excuses range from our supplier will provide that data, supplier say there supply chains proprietary, we don’t have the manpower, and it’s difficult.
I recently started working on a project to develop programs for forced and child labor in the supply chain and, based on my research, many industries and companies have extreme exposure to reputation risk. Thinking back to my experience with commodities and food ingredients, apparel, fishing and mineral categories, there should have been a detailed audit of the supply lines. I used this experience when I coauthored the book “Transform your Supply Chain: Releasing Value in Business” in 1998, which is all about preparing for the changes in supply chain and includes a detailed audit to help companies audit the chain. I update the surveys in that process continually, which now include corporate social responsibility, cybersecurity and a shared responsibility across the supply chain that wasn’t a concern 20 years ago.
I think it’s time to get serious about mapping and auditing the supply chain. No longer can we tolerate a supply base that does not feel the need for mitigation of supply and reputation risk across the supply chain. Here’s a simple process to follow:
Much of the mapping can be developed in the survey. It’s essential to identify critical supply links and assure that there are no issues in the downstream supply. While I understand the constraints of manpower and budgets, the cost will be a fraction of the cost in having a significant supply loss or damaged reputation from a social issue.
Can you afford not to map and audit your supply chain?
While watching the news this week, my wife Linda asked me “Are you a true believer in free trade?” As I thought of a response, I was reminded of why manufacturers began to leave the USA. Yes, many were chasing low labor, but the reality is that many companies were chasing quarterly earnings while operating out of post-World War II factories with limited investment. Abroad, the companies were investing in new plants with updated capital, automation and driving low manufacturing cost as well as having low labor costs compared to the US.
In my corporate procurement and supply chain career, I’ve worked for organizations that had short term focus, lack of (or misdirected) investment and poor strategy. Unfortunately, some no longer exist. The point is that tariffs and duties on imported goods alone will not save US manufacturing. Being the low-cost producer involves investing in the future and developing sound business strategies; that is the key to surviving and thriving.
Free Trade will drive buyers to the low cost, efficient suppliers wherever they are. The high cost, inefficient suppliers can be propped up by protection, but are not likely to survive in the long term. Some supply chains, like the electronic industry, have made the long-term investments elsewhere and have already achieved technology advances, low cost and may never return to the US. The automated factories that return will require different employee skillsets than the industries that left the US and we may not have a ready labor force if manufacturing is reshored.
As procurement and supply chain professionals, we need to develop all suppliers to be efficient, operate at the lowest cost and invest in innovation and automation. I believe that sound strategies, investment and a commitment to the future will lead to the most competitive suppliers, wherever they are located.
It’s a complicated question:
Do you believe in Free Trade?
Happy New Year! The new year is always an opportunity to reflect and, since I have the opportunity to work with many businesses and CEOs, the past few days I’ve thought about what makes a CEO achieve excellence. Considering what I observed the past year, here are 5 keys for business success.
- Companies cannot just cut expenses to achieve profitability. They must grow the top line, develop innovative products, meet marketplace demands and focus on growth.
- Any organization that lacks a clear and simple strategy is like being lost in the woods without a GPS; the organization must have a clear focus and understandable direction.
- The key to any business is its customers. It is essential to know who the customer is, what they need and want. Without a clear focus on the customer the business is subject to fail or significantly lose market share.
- Employees must know the industry, market, have sensitivity to competition and digital disruption and be able to rapidly react to changes. This requires leadership, talent management and clear communication of goals and objectives.
- From the top down, the leaders and employees of the organization must display integrity at all times. It is unfortunate when the leader of the organization lacks integrity; it cascades through the organization.
Boards of Directors have a duty to ensure the survival and health of the organizations they serve. I am on several Boards of Directors and I hold the organizations to these standards. I also use these as key considerations when engaging in new client relationships.
What do you think is key to business success?