As multiple businesses report first quarter financial performance, evidence continues to mount that multiple industry supply chains, from autos to high-tech, are now being increasingly challenged by a global slowdown and bloating inventories.
Barometer suppliers for various multi-industry supply networks have been reporting Q1 financial performance and the indications reinforce various global PMI indices that that activity slowdowns are having a financial impact. 
Diversified manufacturer 3M Company reported one of the company’s largest quarterly revenue misses as sales in automotive, high-tech and other industry segments softened considerably. Sales volumes declined in all regions and 18 of the company’s 22 corporate divisions.
Auto sales among the globe’s three largest markets, China, the Eurozone and the United States have each softened, which is cascading to lower tiers of automotive supply networks. This week, General Motors warned that weaker results from China will continue to impact that automaker’s financial performance.
Shares of 3M stock have declined on the latest financial performance news, and the company has announced it is cutting 2000 jobs in an effort to restructure some business units.
Andrew Obin, an equity analyst for Bank of America Merrill Lynch made the following observation of 3M related to Asia: “It’s an inability to execute on their internal supply chain, to react well to what’s happening in China and Japan.” From our Supply Chain Matters lens, that statement translates to a need for more responsive supply chain risk mitigation along with greater global supply chain agility.
In the high-tech and consumer electronics sector, increased signs of sales declines are also cascading. Bellwether component supplier Samsung Electronics reported a 57 percent decline in first-quarter net profit driven by marked slowdown in memory chip demand from computer server and smartphone customers. According to a published report from The Wall Street Journal, Samsung derived three-quarters of its operating profits from semiconductor sales in 2018, implying that a current double-digit fall in memory chip prices has impacted company results. Intel Corporation and TSMC, two other high-profile semiconductor suppliers each lowered revenue and earnings outlooks.
Business media has often tagged Samsung as a proxy for the global economy because of the company’s dual role as both a hardware manufacturer and a major electronics component supplier to high tech companies, including Apple.
While on the subject of Apple, as we pen this blog, the consumer electronics giant reported another double-digit quarterly decline in iPhone sales. Revenues decline 5 percent while profitability declined 16 percent. Revenues from the Greater China region reportedly declined 22 percent despite iPhone price decreases and incentive trade-in plans.
A further proxy of global supply chain activity levels are transportation and logistics services providers. United Parcel Service reported a 12 percent decline in Q1 operating profit attributed to $80 million in unplanned costs related to winter storms in the United States, along with increased investment spending in global delivery networks. The carrier’s international business focused operating profit fell 11 percent based on a 2.1 percent decline in revenues. Chief Executive David Abney indicated to investors that global economies, including the United States are growing at a slower rate and that ongoing trade uncertainty is causing some companies to adjust their supply chains.
Bloating Inventories
Bloomberg observed this week that business inventories continue to surge, as companies continue to hedge against imposition of tariffs or threats of major trade supply disruption. In Q1, business inventories contributed to the announced 3.2 percent annualized increase in U.S. GDP, far more than what was expected. CFO’s of Baxter International, Coca-Cola, Caterpillar, Lennox International and Whirlpool each cited inventory growth concerns in Q1 financial performance.
Supply Chain Matters Perspectives
Our readers are likely well aware of the increasing pressures and business risks being placed on their individual and industry supply and customer demand networks. Increased global trade tensions and the cumulative effect of increased material and tariff-related costs are taking a toll on responsive sales and operations planning. Supply chain global risk and uncertainty is likely at an all-time high, yet the signposts have been pointing in this direction for several quarters.
It’s as though damn if you do, and damn if you do not, in the notions of inventory hedging decisions, attempting to place more product margin or cost squeeze demands on suppliers, and a likely frustration with senior management in making more timely strategic decisions relative to contingencies or structural changes in supply sourcing.
Despite a feeling of hedged optimism from general business media, we maintain that all of such pressures are likely to increase over the coming months and quarters, or until the global trade and economic growth landscape solidifies. While there remains optimism that individual tariff actions may soon subside, trade tensions and uncertainty are likely to not subside anytime soon.
From our lens, the one tenet that is clear is that supply chain executives and their various operational, supply management and logistics teams are earning their compensation each and every day.
In the midst of continuous challenges, take the time to praise teams for their performance and efforts, and insure that individuals garner some downtime.
It is going to get even more challenging.
Bob Ferrari
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