How Real a Threat is Resource Scarcity?

The lack of critical raw materials is an important consideration in supply chain risk management. One argument says that when we run out of something we rely on, we innovate and discover a new substitute. In this article from the Supply Chain Management Review, the authors cite the transition from whale oil to kerosene as a fuel back in the mid-1800s.

While the article doesn’t offer any concrete answers, it takes a look at the thought-provoking area of resource scarcity as a supply chain risk management issue. These are important questions to ask as we refine our risk management plans.

© 2014 Rick Pay – All rights reserved.

Moving Back Home: The Re-shoring Story Continues

Many manufacturers, both US based and foreign owned, are continuing to come to the United States. A recent article in IndustryWeek suggests it is because of low natural gas prices (US natural gas prices have dropped significantly, recently to as low as one quarter of those in Europe). Because natural gas is used for energy and as a raw material, lower prices have helped contribute to industrial growth in the US of 5% per year since 2009, double the rate of the overall economy.

Factors in the Off-shoring Decision

Many companies that moved production away from the US in the 80s and 90s did so pursuing low cost labor. When labor rates in Asia began to creep up, many decided that logistics and inventory costs to ship finished products back to the US weren’t worth the cheaper labor. Now, it could be low-cost energy that is prompting companies to reconsider the US.

A Wider Perspective

I believe companies have broadened their thinking and are taking a total cost of ownership (TCO) perspective, which takes into account not only the base materials, but also logistics, inventory, quality, reliable supply, energy, regulations, political climate and more. Innovative companies are looking at the total return on investment and assets as well as the impact on speed to market to determine where the base for their global supply chains should be.

I predict that the current wave of reshoring will continue for a number of years. Not only is US productivity the leader in the world, but also many elements of cost – like energy and reliability – are hard to match in other countries.

© 2013 – Rick Pay – All Rights Reserved

For more on TCO and how it applies specifically to purchasing, click here to read my article for eSide Supply Management magazine.

Executives Expect Value From Supply Chains

One of the most interesting findings in the recently released results of the Supply Chain Management World 2012 survey is that companies are looking to their supply chains to do much more than provide parts and raw materials. Executives now see the supply chain as an integral part of creating flexibility in production and response to market demands.

The survey involved 1385 supply chain, operations, and other executives from around the globe. They represented a variety of industries, primarily high tech, but also including consumer packaged goods, industrials, food and beverage, healthcare, pharmaceuticals, and others.

“Our research shows that more and more companies are using supply chain excellence as a means to create value and competitive advantage,” said Hau Lee, PhD, chair of SCM World and professor at Stanford University. “Those that still view supply chain management as a supporting function, or see it only as a way to reduce operating costs…are missing great opportunities.”

According to the survey summary, “The most significant ways in which supply chain excellence boosts top-line growth, according to survey respondents, are the ability to launch new products on schedule, ramp up production quickly, ensure repeat purchases through greater customer loyalty, and receive priority treatment from suppliers when key materials and components are in short supply.”

Do you view supply chain as a supporting function in your company, or as a way to create competitive advantage?

© 2012 Rick Pay – All rights reserved.

Authors: Paige McKinney, Rick Pay

Strategies for Managing Raw Materials Price Volatility

We can’t control raw materials price volatility, but we can employ specific strategies to maximize price security and establish a seamless supply chain that reduces price risk and cuts costs overall.

C level executives are invited to join Steve Rosvold and me for a breakfast seminar on Thursday, March 8 in Vancouver, WA to address how hedging and supply chain management can protect your margins. Click here for a printable flyer.

© 2012 – Rick Pay – All Rights Reserved

Sending Chopsticks to China

Last week NPR reported on an unexpected US manufacturing success story: Georgia Chopsticks, a new company that produces chopsticks for – you guessed it – export to China. When you consider that one third of the world’s population uses chopsticks, it comes as no surprise that there is plenty of room in the market for new producers. Indeed, Georgia Chopsticks plans to ramp up production within the year from two million pairs per day to 10 million per day.

Why Move Production So Far Away From the Consumer?

From a supply chain perspective, we have to ask: why make chopsticks in the southern US, so far from the primary market? In this case the answer is threefold: raw materials, labor, and quality. Clearly China is capable of making chopsticks, but when Georgia Chopsticks’s owner looked for a place to set up his production facility, he found that the small town of Americus, Georgia offered plenty of trees of a type that yields good chopsticks, had a 12% unemployment rate, and while labor is more expensive than it would be in China, the quality is better.

Why It Works in this Case

In this instance, finding raw materials, labor and the potential to produce a high-quality product made it worthwhile to set up production far away from the customer. This is working out because chopsticks are not perishable, demand doesn’t fluctuate, and is it unlikely that chopstick design will change anytime soon. After all, they’ve been around for over three thousand years.

© 2011 – Rick Pay – All Rights Reserved

Authors: Paige McKinney, Rick Pay