Tag Archives: supply chain challenges

The Supply Vulnerability That Could Kill The Electric Car

Nearly all the pieces are in place for the long-overdue surge in electric car production. But before the automotive industry can finally transform itself, there’s one supply challenge that remains to be solved.  

Prices for rare earth elements are rising. China holds one third of the world’s reserves, and – alarmingly – 97% of global production. Meanwhile, the demand for electric cars and other green technology has led to dramatic surges in prices. A recent report from the Nikkei Asian Review found that spot prices for neodymium (used in magnets found in electric motors) hit $95 per kg in mid-September, a 90% spike from the 2016 and an 80% jump from the beginning of 2017. Similarly, terbium is 36% up from November last year, sitting at around $600 per kg.

Reasons for the price surge include:

  • Rising demand from the U.S., Europe and Japan, particularly by manufacturers of green cars.
  • A Chinese crackdown to enforce environmental regulations at substandard rare-earth smelting works, leading to suspension of operations.
  • Traders stockpiling rare earths in anticipation of higher prices.

Concern is also rising that rare earths are now a major bargaining chip for China ahead of any potential trade war or deterioration of its relationship with the United States.

In the hybrid and electric car space, rare earth metals are typically incorporated into the magnets used in DC motors. Car-makers such as Chevrolet, Nissan and Toyota are actively working to reduce their reliance on the metals, yet will face a steep challenge as the global fleet of electric cars is estimated to grow from around 2 million today to over 14 million by 2025.

Tesla – as usual – appears to be steps ahead of the problem with their use of an AC induction motor, which doesn’t require magnets and therefore has no rare earth elements. Other parts of Tesla’s vehicle, such as the high-end sound system and specialised glass, reportedly do contain rare earth elements.

Electric car batteries are not the only items at risk. Rare earth elements are used in industrial robots, hard disk drives, cordless tools, magnetic hold-downs, jewellery clasps, wind turbines, smart phones and even smart bombs.

The good news is that although China controls 97% of production, two thirds of the world’s estimated reserves lie elsewhere. The US itself is thought to have around 13 million tonnes (the most promising area being the Mojave Desert), while Russia has around 19 million. Other large deposits can be found in Australia, India, Brazil and Malaysia, while Greenland and some parts of Africa also have untapped sources.

Japanese firm Hitachi has responded to the supply challenge by launching a recycling effort to recover rare earths from hard drives and other materials.


In other news this week:

Tech giants hit by CCleaner malware

  • An estimated 2.27 million users of CCleaner, a free software tool for optimising system performance on PCs, have been affected by malware which “piggybacked” on the software.
  • Investigators believe the attack was designed to target PC users working for specific tech firms, including Samsung, HTC, Sony, Singtel, Vodafone, Cisco, Intel, Google and Microsoft.
  • It is unclear whether the malicious code, described as “relatively complex” and “aggressive”, was designed for commercial or state-level espionage.

Read more at Tech Crunch.

Gartner releases European Supply Chain Top 15

Gartner has identified 15 supply chain leaders that have demonstrated strong growth, along with high scores in corporate social responsibility and opinion score performance. Trends across the 15 leaders include digital experimentation, speed to adaptability and a focus on sustainability.

  1. Unilever
  2. Inditex
  3. H&M
  4. Nestlé
  5. Nokia
  6. BASF
  7. Schneider Electric
  8. L’Oréal
  9. BMW
  10. Diageo
  11. Reckitt Benckiser
  12. GlaxoSmithKline
  13. Adidas
  14. Roche
  15. Siemens

Faster, Cheaper, Better – The Future of Logistics

As technology drives change in logistics, companies must meet increasing consumer demand. But what does it mean for traditional labour roles?

logistics

Logistics has never felt more fluid and subject to change. In this article, we’re going to look at the key factors driving all this change and then consider how technology will develop in the next 10-20 years. Then, in our second piece, we’ll consider how new business models will evolve before trying to draw some conclusions.

Faster, Cheaper, Better

Commercial interests have always demanded logistics move stock quickly, cheaply and in large quantities. Historically, transport improvements – from horses through to planes – answered this demand. But in the future, it will be the digital world that provides these answers.

The 21st Century customer is an unforgiving beast. However, while new shopping patterns are placing extra demand on logistics providers, they are also generating fresh opportunity. As end customers become more focused on flexible, fast and cheap solutions, logistics companies that optimise their digital usage are well-set to take advantage of weak competition at every stage of the supply chain, including retailers.

Technological advances, forecasting and new business models all offer glimpses of how these demands can be answered. There is even the possibility that much of the future supply chain will be autonomous and self-organised.

One thing for sure is that it will faster, cheaper and better – the customer won’t accept anything less.

Interconnected World, Interconnected Supply Chain

3D Printing

3D printing makes it possible to print exact working replicas of parts and products using metals, plastic, composite materials, and even human tissue. This can be done quickly, on demand and to a customer’s specification. This makes it a central technology in the development towards “batch size one” production.

It also means it will no longer be necessary to store large amounts of stock. Though it is possible there may be a counter-balancing increase in raw material storage.

In markets in which 3D printing is relevant (for example, spare parts), this has the potential to heavily disrupt logistics. And the best 3PLs will provide 3D printing services at the point of delivery to dovetail with other services.

Internet of Things (IoT)

The IoT is the developing ability for digital devices to communicate directly with each other across the internet. It’s estimated that by 2020, more than 50 billion objects will be “web-enabled”. And, if you consider that they will be able to “talk” to one another, the potential becomes clear.

Immediacy of communication can lead to many direct benefits. Creation of automated orders for domestic resources, lorry sensors informing maintenance schedules – all focused on improved speed, efficiency and cost.

From a customer perspective, the ability to track items through their RFID chips and via GPS will mean 100 per cent visibility across the whole delivery cycle. From a logistics perspective, one can also envisage other variables – such as location, temperature, pressure, humidity, etc. – being monitored throughout the supply chain for improved transportation efficiency.

However, the biggest single opportunity arguably comes from the unrivalled quantities of consumer data that will arise, feeding into forecasting and automated processing. For those who can embrace and take advantage of it, this goldmine of information is a very exciting prospect.

Automated Systems

Whilst the idea of automation can seem like something from science fiction, there’s no denying the groundswell of development this area has seen in the last 2-3 years.

Labour costs are always a critical element in any operating model. In logistics, the trade-off between quality of service and cost is central to success. Automation could re-write this equation by providing a faster and better service for less money.

Relatively simple loading and unloading systems are already available. But these will become more sophisticated as advances in optics and data processing mean forklifts can navigate autonomously in dynamic environments, and with less error than human drivers.

In addition, autonomous delivery is on the horizon. DHL and Amazon both plan to launch drones for last-mile deliveries. And the appetite for them is strong amongst manufacturers, retailers and customers.

Autonomous lorries are also a real possibility using the same optical and AI developments that underpin driverless forklifts.

Not only would driverless vehicles be cheaper – both in labour and fuel costs – they will also be safer and more predictable making them ideal tools for efficient supply chain management. Add to this the fact the whole transport industry is suffering from dramatic driver shortages, and it’s not a surprise this technology is very appealing to most industry segments.

Augmented Reality

Augmented reality (AR), overlays relevant information (such as sound, vision or tactile data) onto a user’s normal sensory input, generally via body suits/gloves, goggles or headphones.

Wearable devices are already available that offer a glimpse into the potential future of this technology. Smart phones, smart watches, and VR goggles all give indications of how additional relevant data can be communicated.

For example, stock control data (SKUs, pallet contents, BBEs, etc.) could be accessed without leaving the warehouse floor, displaying data for on-the-spot planning and organisation. And when incorporated into transport, it could offer intelligent last mile assistance (navigation, traffic information, etc.)

Essentially, AR enables greater collaboration between systems and workers. As such, all logistics companies need to consider how AR can ensure all the elements work well together.

Whither the Worker?

With more automation, traditional labour roles will diminish. As such, redefining the place of the human worker within a more technologically advanced environment, will be vital.

In some areas, we will see happy confluence, such as a diminishing driver workforce being superseded by automated delivery solutions. But elsewhere there will be less need for human skills, and an increased need for other skill sets that, historically, have not been required.

For example, automated pick and pack solutions make warehouse operatives less relevant. However, at the same time air and sea transport are both chronically understaffed, with no expectation that the industry demands will drop.

The onus will be on logistics companies to identify future HR needs and pay close attention to their recruitment. In addition to recruitment, the whole sector will need to become more proactive in training, encouraging transferable and future-proofed skills to ensure an engaged and productive work force.

Central will be the development of technically proficient workers. Low-skilled roles will diminish markedly and ICT-related knowledge will be vital.

Zupplychain employs algorithmic matching of customer’s search requirements to warehouse availability to show warehouse pricing, along with an automated and structured process to progress enquiries and a cloud based system to manage customer stock in provider’s warehouses.

Samsung Eats Horsemeat on the Titanic with Captain Kirk

Highlighting potential procurement lessons from the latest supply chain crisis for Samsung – the Galaxy Note 7.

samsung galaxy

This article was written by Daniel Ball, Director at Wax Digital.

The Samsung Galaxy Note 7 spent just two and a half months on the market before it was recalled amidst a crisis badly affecting its share price, not to mention its brand image.

The device was quickly taken off the market after some models of the phone exploded and went on fire. It was found that overheating lithium ion batteries were to blame.

Some analysts have been quick to consider how a respectable brand like Samsung, which surely has a sound manufacturing process and supply chain, has come to retailing a product that turns out to be dangerous.

Many have put the blip down to Samsung’s competition with rival Apple. The battery of the Galaxy Note 7 is bigger and has a higher energy density than Apple’s iPhone 7 Plus. This suggests that Samsung has tightly crammed in more components.

Has Samsung’s desire to trump Apple seen it rush a product to the market without properly addressing the true capability of its battery technology?

It’s also been argued that the mobile sector’s demands are pushing battery technology to and in some cases beyond, its limits. It’s not the first time this technology has literally flared up (remember the hoverboards last Christmas?).

Race to Beat the Competition

The situation raises a key question that applies to any competitive marketplace.

At what point does the race to release new products and beat the competition, or simply deliver a competitively priced product to tight margins, become more important than ensuring your supply chain is not taking risks? Where is the line drawn in adding components into the product that could ultimately harm the very people you are trying to win over (your customers)?

It’s what I call ‘the Titanic effect’. In a bid to make the infamous boat lighter and faster in the race to cross the Atlantic, all sorts of risks were taken. And it was the customer who paid the ultimate price.

While not all risks involved are supply chain related you have to ask the question “what was procurement’s role in all of this?”

Are customer and business demands properly mapped onto supply chain capabilities? Are supplier checks rigorous enough to ensure they can do the job we need them to do safely and securely?

Or is procurement like poor Mr Scott in Star Trek, constantly at the mercy of his boss, Captain Kirk, wanting him to flog the warp engines again even though he keeps telling him “they cannae take much more”. 

At the bottom line, visibility of who is in your supply chain and how they are operating has reared its head once again. It raises the point that procurement needs to play an increased role in the decisions of the business to ensure the rules of demand and supply are effectively balanced.

Leadership & Chicken – Reflections on SAPICS 2016

Visibility, leadership and SRM in chicken sourcing – highlights from the 38th SAPICS Conference in South Africa.

SAPICS Conference

Earlier this month, I attend the 38th Annual SAPICS Conference, held in Sun City, South Africa. With the theme this year of “A Concert of Coordination”, the conference focused on bringing supply chain professionals together to network, and to discuss topics and access resources relevant to the supply chain profession.

A number of high-profile individuals and organisations graced the speaker list for 2016, far too many to see in 3 days, let alone cover off in a post-conference article! However, I have picked out three major themes and points that I took away from the conference.

1. Gaps in Supply Chain Visibility

Lora Cecere, the renowned Supply Chain Shaman, was in South Africa this month to share her US survey results and some views on the wide range of topics at the SAPICS Conference.

Of particular interest to the procurement community was her take on the challenges in two of the main identified areas of pain: supply chain visibility, and problems in talent management; the latter being that all-time favourite topic of speakers that has no clear solution.

When comparing the importance of visibility of information on first tier material suppliers vs. their actual performance, respondents acknowledged that there was a big gap between importance (83 per cent) and performance (38 per cent). Almost all respondents (96 per cent) identified that there was also a similar gap in visibility into transportation and logistics networks.

Supply Chain Insight

In some cultures, a shaman is believed to be able to use magic to cure sick people, to control future events, and more. Since Lora Cecere is seen as a shaman, we could look to Supply Chain Insights for help when trying to work out why visibility into first tier material suppliers is such a challenge.

What is also interesting from the research, is that respondents did not identify much of a gap between the importance of visibility and actual performance in second and third tier suppliers. Could that really be the case in other markets?

2. Leadership – a hundred years ago

An interesting parallel was drawn by a speaker, Kate Stubbs of Barloworld Logistics, about styles of leadership 100 years and today.

She was reporting back on the annual study, supplychainchangeforesight 2016which was undertaken in conjunction with Frost and Sullivan. She considered the leadership style of Sir Ernest Shackleton, the 1920’s polar explorer, with the traits and approach required of current supply chain leadership.  Shackleton was:

  • a leader that could create order from chaos.
  • one who had to adapt and change to suit his rapidly changing circumstances.
  • optimistic and had a people-centred approach to success.
  • able to reconsider his path and redirect his goals when he hit serious snags.

Shackleton

Sound familiar?  We often have to change direction mid-stream track due to circumstances, often because of events beyond our control.  Constantly redefining our plan has become the norm.

How much has changed in 100 years?  Men (and women) wanted for hazardous unknown journey, that part’s definitely true. People hope for honour and recognition in the event of success, but it’s not always delivered.

3. Chicken and chips, anyone? Nando’s supply chain

Perinaise

A category manager in the casual dining restaurant business (a more polite term than fast food), has a very different life to the rest of us.  Sourcing electrical parts or software licences is not half as exciting as negotiating for containers of African bird’s eye chillies from Southern Africa, or for the manufacture of bottles of Perinaise.

Nando’s supply chain, although directed from its HQ in Johannesburg, has staff in many of the 30 countries it trades in. Linda Reddy, Supply Chain Director, says that one of their main areas of focus is supplier relationship management, with a major emphasis on continuous improvement. That’s quite important when you have to get fresh-not-frozen chickens from factory to table in less than 8 days.

Next time you are in Nando’s, take time to view the art while you are considering how your hot sauce got to meet your half-chicken. 

References to Powerpoint Presentations at SAPICS:

Lora Cecere: 15 Years Forward: 15 Years Back :  Supply Chain 2030

Kate Stubbs : “supplychainforesight 2016”. Barloworld Logistics.

The EU Referendum – Supply Chain Trade at Stake?

No matter where you are in the world, you’ll have heard about Thursday’s referendum in the UK about its EU membership. Have both sides overlooked a critical point in the debate?

EU Referendum

This article was written for Procurious by Chris Cliffe.

Procurious is a global platform, but wherever you are, you’ll have heard about this week’s referendum in the UK.  Will the UK #RemainIn or #brexit the EU this week?

Far from being specific to the EU, I think it’s a global issue. And one I find myself thinking about sitting on a train…

Referendum & the Supply Chain

No one can agree on the exact figure (£350m-£380m per day), but the UK is a ‘net contributor’ to the EU. In fact, the UK is one of the biggest net contributors along with France and Germany. But what about taking this issue in (very) simple supply chain terms?

Customers pay suppliers for products. Suppliers make profit from product sales. Therefore we can view customers as ‘net contributors’ to suppliers, much like the UK to the EU. What would happen if a supplier were to lose one of its biggest customers?

The loss of that customer’s revenue needs to be mitigated.  Replacing that customer with new business of equivalent size will be difficult, or at least take a long time. Whilst costs may have gone down through no longer servicing that customer, cost reduction is not proportionate to the lost business, leaving an increased cost to be recovered from remaining customers.

What are the options? The supplier can: take the hit; make efficiency savings; increase prices for other customers; or pass on the cost to the supply chain.

So, if the EU loses a large net contribution, other member states will either see a reduction in EU funding, as there is less money to share out, or they will have to renegotiate their contributions to the EU to make up for the shortfall.

Contributions are proportionate, so all member states will either see their contribution increase, or their share of the funding reduced. France and Germany would likely be most affected.

Shifting Issues

The UK might view this as the EU’s problem. However, all that will have happened is the ‘problem’ has just changed.

Assuming France and Germany – two of the UK’s largest trading partners – did pay more into the EU to cover the loss of the UK’s contribution, how will they take the hit? More austerity? Or will they pass on the cost to their customers – particularly if the customer caused their cost increase!

The UK will want to continue to trade with the EU member states.  That will be possible, and the member states will want to trade.  However, having left and caused those very same member states to see higher costs as a result, I’m struggling to see why we aren’t more concerned about potential ‘tariffs’ which may be applied.

The risk is that the EU will want to recover the ‘cost’ it suffers from a Brexit. Furthermore, the EU will debate and agree their stance on this. And guess what – the UK won’t be at that table.

Supplier Perspective

From a supplier perspective, losing a large customer simply to find that customer still wants your product, but just didn’t want to pay for it is frustrating enough. But what example would you set to your other customers if you actually agreed?

Of course, suppliers will be happy to supply those products, and even though the commercials of the deal might change, you’ll inevitably be charged the same (or more as the deal is no longer standard and will have introduced complexity, risk and cost). Other customers will be watching you.

But the UK isn’t just a customer, it’s a supplier too. Exiting the EU may mean higher costs for the UK’s customers, meaning they have less money to spend. They may want to trade, but could buy less, or need lower prices to compensate.

Let’s consider Framework Agreements. Frameworks are really useful commercial vehicles (a separate debate!) to access products and services without complex, lengthy advertised procedures.

Typically, a set of suppliers are appointed to a Framework for a fixed period. Suppliers who are not appointed to the framework cannot trade through it, and consequently find it more of a challenge to trade with the public sector, who want to use the ‘easy’ route.

Think of the EU as a framework, and the member states as the suppliers appointed. The UK could be about to give up its hard fought position on the framework. In doing so, the UK will be making itself more difficult to trade with, and it will be natural for current EU customers to look at other, less complex, sourcing options.

So, if the referendum goes for #Brexit, does the UK become just a country geographically in Europe, but in the ‘no longer free to trade’ area? Is the UK’s slice of the EU trade pie more at risk than either campaign have realised?

Well, I conclude that…my train has arrived on-time! Don’t forget to  vote if you’re eligible!

Want something to take your mind off the referendum? Here are the week’s procurement and supply chain headlines…

Starbucks Names New Supply Chain Chief

  • Hans Melotte, former Johnson & Johnson CPO, and current Chairman of the ISM Board of Directors, has been appointed by Starbucks as its new Executive Vice President of Global Supply Chain.  
  • Starbucks has approximately 16,000 suppliers and operates in over 70 countries and has recently announced plans to open a 20,000 square-foot roastery in New York.
  • Mr Melotte will oversee supplier relationships, distribution, transportation and store delivery, and is expected to transform stores’ distribution channels in line with company expansion.
  • Mr. Melotte also featured in Procurious’ recent article on the use of the term ‘strategic’ in the profession.

Read more at the Wall Street Journal

World Day Against Child Labour

  • The ILO’s World Day Against Child Labour took place on Sunday 12th June, with this years’ focus on child labour in supply chains.
  • An estimated 168 million children are found in supply chains across the world, in every sector and region.
  • “The time for excuses is over”, said ILO Director General Guy Ryder. “With redoubled from governments, employers, workers organisations and enterprises, child labour in supply chains can be stopped.”
  • The ILO has developed a new app designed to help business managers and auditors to create checklists that will help ensure a child labour-free operation.

Read more at the International Labour Organisation

M&S Unveils New Supply Chain Mapping Technology

  • M&S released its first online supplier map alongside its inaugural human rights report last week, showing 1,231 factories in 53 countries.
  • The interactive map has the capability to zoom in on individual facilities to see the address, number of workers on site, and gender of those workers.
  • The data for the map comes from supplier-reported information and third-party audits.
  • The mapping technology is expected to greatly improve supply chain visibility, and can be tailored to include more data.

Read more at Green Biz