The nation’s direct and indirect procurement managers are meeting this week at the ISM (Institute for Supply Management) Annual Conference- ISM 2018 in Nashville Tennessee. The stated theme for this year’s conference is aptly named: Global Vision, Peak Performance, all of which will continue to be put to the test in the coming months.
More than ever, this year provides a critical time for multi-industry procurement professionals, one that tests overall leadership and stamina. Challenges, to name a few, include managing unanticipated increases in commodity and transportation costs, educating, and assisting all levels of management in potential impacts of a highly uncertain U.S. trade and tariff policy, all while dealing with the constant need for added skills and broadened organizational talent.
In our Annual Predictions for Industry and Global Supply Chain (available for complimentary downloading in our Research Center), we predicted an optimistic yet challenging year for industry supply management teams. Many approached 2018 with positive optimism regarding anticipated business growth, but similar to last year, another challenging year in many dimensions. Thus far, that is indeed the case in many dimensions.
Various economic forecasts had indicated modest increases in inbound commodity costs at the start of this year. Energy costs, the lifeblood of supply chains, as manifested in the average price for Brent crude, were forecasted to average $56 per barrel. Yesterday, The Wall Street Journal indicated in a published report yesterday that oil experts got it wrong, that the price of crude has grown nearly 12 percent thus far and prices averaged near $67 last week. The price of Brent closed at near $75 per barrel on Friday and the WSJ reports that Saudi Arabia desires to push the price towards $80. U.S. consumers are beginning to feel the effects as they fuel-up, and so have industry supply chains.
Supply Chain Matters, along with other business and industry media have all highlighted the explosive rise in U.S. transportation costs. We opined in our Q1 Newsletter that that trend will continue for the coming months and businesses will feel the sting. To cite just two examples, General Mills and Tyson Foods, both supporting distribution-centric supply chains, reported quarterly financial performance directly impacted by significantly rising transportation costs. In Tyson’s case, higher freight and labor expenses were cited along with a forecast of an added $200 million in annual transportation costs as a result of a lack of trucking capacity and drivers. General Mills cited sharp increases in input costs including significant increases in transportation costs contributing to performance falling well below expectations. Many other firms are dealing with the same challenges.
On the commodity front, commodity pricing in metals such as aluminum, copper and steel continue to be highly volatile, driven by global trade, geo-political and market speculation. Today’s WSJ indicates that wild swings in aluminum prices have “jolted buyers and sellers, threatening profits of manufacturers from jets to beer cans.” Price levels recently reached a six-year high and availability of global supply remains a challenge given the ongoing geo-political trade landscape that includes added tariffs and country-specific sanctions. Similarly, the threat of steep tariffs on U.S. imported steel are testing both pricing and product availability levels. Yet, at the beginning of the year, metals and mineral prices were projected to ease slightly.
And so, the listing of challenges goes on, all of which reflects the need for broadening business advisor and strategic skills among procurement professionals. Implied is a much closer relationship with engineering and product design teams, fostering higher levels of collaboration and innovation among key suppliers and internal supply chain and S&OP teams. This is a year of continuous analysis, planning, and business education.
Procurement leaders and their respective teams that can stay ahead of all of these ongoing challenges will be leaders for their respective businesses and companies.
Supply Chain Matters provides a shout-out to all procurement professionals, either attending this year’s annual conference, or too busy with managing needs at the office. Soak in as much knowledge as you can, understand international supply trends, as well as areas where advanced technology can add to quicker, more-informed decision-making. Supply Chain indeed Matters to enable successful business outcomes, and sourcing and procurement professionals have an important role to foster such outcomes. Soak in the knowledge, take the time to network and share with multi-industry peers, and find the time to do some needed country-music partying.
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