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Red alert! Red alert! – Supply Chain Prediction 2013 is beginning to materialize…

Earlier this year in Feb 2013, I had made my prediction for the Supply Chain of 2013 – You can read it here in : Predictions for the Supply Chain in 2013.

In that post,

Well, I have my prediction too for the supply chain of 2013 (and 14 and 15 too). If anything I’d call it the rise of the Supply Chain Currency Wars. The first shot of this new phase of global currency wars was launched by Japan a week or two ago. While it will start slowly, over the next few years, this sort of tit-for-tat devaluation will play havoc with global supply chains especially the one’s with finely tuned cost calculations justifying the location of factories and/or distribution centers.

Devaluation of currencies over a matter of couple of quarters and in-kind retaliation is going to drive up financing risk in the supply chain. Were such a scenario to come to pass, then supply chain operators need to nail down some other variables so as not to have all the variables in a supply chain in a volatile flux.

Big Data – Nyet. Bigger and Badder visualization – Not a chance.

Increased volatility, upset cost calculations – Yes, sir – that’s for breakfast, lunch and dinner around the corner. Almost all the Emerging Market countries (such as BRIC) have entered a period of flux, not unlike what the Nutty Market countries at the periphery (Egypt, Syria etc) entered into roughly 2 years ago. This flux in the Emerging Markets – both China and India have received a lot of foreign investment in the past years.

So take one scenario : As projected growth and real growth decline, these countries will be subject to capital outflows. This is why, devaluation of the currency is the only way out for countries that constitute the manufacturing base of the world – the hope would be that devaluing their currency makes their exports cheaper and thus keeping the growth engine going. However, this is a problem for all other developed countries other than the US.

Capital outflows from emerging markets need to go somewhere. Where? You have only two choices – Bonds or Equities (well, there’s a third – Dollars). As the Fed ramped up talk about tapering the Quantitative Easing, yields have spiked for US Treasuries. Remember that if the yields spike too much, governments at all levels in the US (local, state and federal) will essentially stop functioning as they have promised to i.e. the inability to finance and roll over maturing debts at spiking rates. Equities have doddering at ever higher and higher valuations – buying into the markets at these levels is asking for trouble.

If it is bonds that these capital outflows crowd into – yields come down and everything is kicked down the road for a few more years. If it equities that these capital outflows crowd into – the markets are buoyed for a little longer with the attendant desire for the wealth effect that the Fed has been hell bent on creating.

Then the cycle reverses again intolerable equity valuations or dampened yields force capital outflows from the US back outwards in search of return.’

So what do Currency Wars mean for the supply chain? Take your pick: Disruptions, Volatility, Uncertainty, Wild swings in valuations and costing, Sourcing variations that inevitably lead to quality variations.

In one word : Variability. That’s the bane of any operation.

Amending the Supply Chain Prediction…

NOT!!!

However, here’s Ms. Lagarde of IMF : Lagarde sees Currency Worries, Not ‘War’.

"There’s been lots of talk of currency wars, and we have not seen any such thing as a currency war. We’ve heard currency worries, not currency wars," said Lagarde. "We’ve not seen confrontation but deliberation, dialogue, discussions and clearly this G-20 meeting has been extremely helpful and productive."

Lagarde’s comments echoed those of the G-20 nations on Saturday, who declared that there would be no currency war. This has taken the heat off Japan, which has been criticized for its expansive policies that have driven down the yen following the election of Prime Minister Shinzo Abe.

We’re all diplomats for now. Like I said in my prediction, we’ll first take the time to get this wrong to the fullest extent possible before we admit to the possibility that it was a war all along. So far we have no confrontations but deliberation, dialogue and discussions only. But confrontations arise from accusations – so until we see all sorts of accusations thrown about, it’s quite alright to be in the mode of Supply Chain worries.

Like this kind:

Bank of Korea Governor Kim Choong-soo told the Wall Street Journal on Sunday that he was concerned over the weakening yen’s impact on his country’s economy. The governor stressed the importance of strengthening financial safety nets to give smaller nations the confidence to not have to stockpile currency reserves.

However, be not alarmed when such protestations erupt from the smaller economies. When you sniff the first wave of accusations between the larger economies, you’d do well to have already taken a long hard look at every and any extended supply chain and start diversifying options – especially options that have a strong currency component to it.

Guest Post: Disney and Others Focus on Supply Chain Logistics with Jaxport

It was announced recently that Disney Parks and Resorts will be teaming up with Jaxport, the TracPac shipping terminal in Jacksonville, Florida. About 75% of Disney’s merchandise will now be going through this port as opposed to the one they were previously using in Savannah, Georgia.

When asked about the move, Senior VP and CFO of Disney Parks and Resorts, Anthony Connelly, had this to say:

“From a business decision for us, it’s about optimizing our supply chain and being able to minimize the cost associated with bringing freight here.  So to us, it was about saving money and we’re certainly excited to participate in growing Florida’s economy as well as Jacksonville’s economy.”

Although a quarter of Disney’s merchandise will still pass through the port in Savannah, the goal of the company is to eventually have Jaxport be the standalone terminal for all of Disney’s merchandise.

Jaxport – America’s New Logistics Center

Disney’s switch to Jaxport is a signal that this hub is becoming a major player in the import and export industry. What makes Jaxport so unique is its ability to serve as a terminal for both inbound and outbound cargo as well as the ease of distribution of goods to numerous parts of the United States.

Jaxport can also boast a new state-of-the-art container terminal, and the hub’s location in Jacksonville, Florida means it is the crossroads of global commerce, with multiple highway and rail options in and out of the city.

Disney is not the only company taking advantage of Jaxport’s superior capabilities. Brands like Coach, Michael’s, Bridgestone, PSS World Medical, Sears, Samsonite, Maxwell House and Unilever have all made the switch to Jaxport in an effort to better optimize their supply chains.

Rich Markovich, Director of International Logistics and Compliance for the Michael’s art supply chain, notes an advantage Jaxport has and why it is such an attractive choice:

“A real point of strength is the workforce in the Jacksonville area – on top of the dynamics that make Jacksonville a very attractive place when it comes to domestic transportation.”

The Decline in U.S. Manufacturing Leads to New Supply Chain Logistics Centers

Throughout the last decade, there has been a measurable decline in the manufacturing of goods on US soil as production has shifted to overseas markets where costs are much lower.

This shift has caused an increase in imported goods to this country and a need for new supply chain logistical centers that can handle the arrival and distribution of thousands of cargo containers.

Many ports throughout the country are trying to capitalize on this import trend, but it is the ports on the southeast coast in particular, such as Jaxport, that are in a position to reap the greatest benefits. This is in large part due to the fact that west coast ports are currently close to operating capacity and cargo moved from these hubs must absorb increasing expenses as fuel prices remain high.

From a First Coast Vision Report:

“Supply chain logistics centers are catalysts for further economic activity in the community. Clustering of these facilities is common because businesses feel more confident in their location decisions when they see companies with similar business needs thriving. As Jacksonville attracts more of these companies, others will seriously consider Jacksonville for their own relocations and expansions.”

As supply chain management executives continue to seek optimized and cost-effective logistical solutions, they must consider using ports of entry with established supply chain centers that have connections to major trade lanes, reliable containership services, and a qualified workforce. These considerations make Jaxport a natural supply chain logistics center choice despite intense competition.

Pete Kontakos is a contributor who writes about supply chain management certification online.

SAP to Acquire Procurement Software Vendor Ariba for $4.3 Billion

SAP will pay $45 a share, or 20% more than Ariba’s May 21 closing price. The price paid is a hefty one, coming in at about 106 times Ariba’s trailing EBIDTA.

Now, that’s betting on growth.

Posted using Tinydesk Writer iPhone app

General Motors suspends Volt production

As widely expected, GM is suspending the production of the Volt for five weeks as reported here : General Motors suspends Volt production.

General Motors Co. is suspending production of its Chevrolet Volt electric car for five weeks amid disappointing sales.

A GM spokesman said Friday that the company will shut down production of the Volt from March 19 until April 23, idling 1,300 workers at the Detroit-Hamtramck assembly plant.

The Volt was rolled out with great fanfare in late 2010 but has since hit bumps in the road.

and

GM sold 7,671 Volts last year, below its original goal of 10,000 cars. The company stopped publicly announcing sales targets last year. It sold 1,023 Volts in February and 603 in January.

"The fact that GM is now facing an oversupply of Volts suggests that consumer demand is just not that strong for these vehicles," said Lacey Plache, chief economist for auto information site Edmunds.com.

GM spokesman Chris Lee said the company was "taking a temporary shutdown" of the assembly line.

"We’re doing it to maintain our proper inventory levels as we align production with demand," he said.

Yup, align production with demand.

Now, here’s my good ol’ post about GM’s woes : Will GM go bankrupt again?

Predictions from Supply Chain Gurus 2012 – Part 1

As promised, here is my take on the Predictions from Supply Chain Gurus for 2012. You can read the article at SC Digest :  Predictions from Supply Chain Gurus for 2012

First up the Gartner Boyz:

Like others, Gartner is projecting a movement of manufactured goods overseas back nearer to US soil, if not within the country itself. It projects that "By 2014, 20% of Asia-sourced finished goods and assemblies consumed in the US will shift to the Americas," which of course can mean Mexico, Honduras, Costa Rico and other nearby sourcing locations.

The drivers? First,they says that many companies initially underestimated the true total costs of long supply chains offshored to Asia, miscalculating inventory costs, greater issues with product quality, lost sales or discounted prices due to long lead times, IP theft, and more.

They also note that some of those issues may soon be exacerbated in some countries (meaning China) as more and more production will be consumed in Asian markets, not Western ones.

Sorry, guys but I predicted this way back in 2006-07. Don’t believe me, you can read it for yourself here: Surviving the China Rup Tide – How to profit from the Supply Chain Bottleneck and The Intimate Supply Chain – Part 1 amongst other posts. The simple point is that none of these supply chain moves (no matter who the guru predicting it is – not even me) are holy writ but they’re very much context writ.

And what explains this shift?

"Customer demand for service excellence and increased product choice at competitive prices is
driving brand owners to reassess the value delivered by their supply networks," the analysts say. "Sacrificing lead time for reduced unit cost will be insufficient to satisfy this customer requirement."

For certain segments of the supply chain, a "nearshore" strategy will make a lot more sense, they believe.

Come on, does this hypothesis pass muster? Isn’t there a recession on still – unofficially but have you taken a look at the purchasing power of the middle class lately?

Production to scale is a great idea when demand is always pointing upwards on a growth chart but it’s a sorry idea if your demand falls off a cliff or in this case becomes as volatile as fickle fig leaf.

Further,

Gartner says that "After billions of dollars spent on ERP, many companies still lack the timely, accurate and network-based data that can guide fact-based, timely supply chain decisions." It also notes that companies are collecting in one way or another vast amounts of information, much if not most of which is not being used effectively for improved decision making. "Big data" is the term associated with the opportunity to better mine this information and extract more value out of it, to the great delight of data warehouse. analytics, and storage vendors.

Now, remember what I said just a few posts back about the inevitable entrance of Big Data into the enterprise world – this is no big secret and my advice to you is to get on the bandwagon now. That’s also the reason why I started my Big Data blog because there’s no escaping this elephant in the room.

This provides a perfect segue into a curious coincidence wherein this firm came into my crosshairs – Lokad. Now, I’m not very familiar with the technology but that will be the focus of my  next blog post as I investigate what they do. The gist of it is that they’re trying to get better forecasts by digging through Big Data.

Stay tuned for that update…

 

Supply Chain Guru Predictions for 2012

SC Digest has compiled two reports on Supply Chain Guru Prediction on their site. Here are the two reports.

Supply Chain Guru Predictions for 2012 – Part 1 and Supply Chain Guru Predictions for 2012 – Part 2. The SC Digest editor Dan has assembled quite a field of gurus to give their views and I’ll be delving into them in a few posts going forward.

Enjoy!!

About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

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