Meme from the Office. Okay, it's happening. Everyone stay calm.

Digital Procurement Download: Near-Shoring, For Real!

1. News Bite: Near-Shoring Happening ‘Faster Than Expected’

If you’ve been following me for the past couple of months, first of all thank you.

Second of all, you probably noticed there are a few topics that fascinate me. Number one is off-the-rails IT mega-projects (seriously, someone please identify a 9 figure software project that wasn’t a total disaster – I’ll wait).

But a close second is the near-shoring trend and whether it’s really going to stick. I’ve written about it a few times over the past several months, because I’ve heard a lot of this buzz before, back in 2007-8.

15 years ago, a massive economic downturn derailed the trend. Today, according to new research from Gartner, the trend is accelerating, at least among SMBs.

What’s different this time around? Why hasn’t the recent economic slowdown derailed it just like the Great Recession did?

The answer is pretty basic: this time the trend is rooted in a desire to solve operational problems and increase supply chain resilience. Long supply chains are inherently more fragile than shorter ones.

In contrast, in 2007-8 the trend was basically about fuel costs: when shipping rates spiked it was suddenly a lot more expensive to import materials from China, and when they fell it was cheap again. So businesses went right back to the old way of operating.

I feel comfortable saying that, yes, this time near-shoring really has legs.

2. Cool Tool: IFTTT

IFTTT (short for “If This Then That”) is the OG of no-code automation and app integration. But it’s still around because it’s great! And it has a forever free plan.

What can you do with IFTTT? Almost anything you put your mind to! Here’s an idea to get you started: automatically turn your phone ringer off at the start of a meeting, and turn it on again at the end.

3. Words of Wisdom

“Supply chains are becoming less of a back-of-the-house ‘secret recipe’ and more like a joint collective where everyone benefits.” – Olivia Montgomery, Associate Principal Supply Chain Analyst at Capterra

4. Upcoming Event

Supply chain performance is more critical than ever. Acting quickly in response to data is more critical than ever. Yet the industry standard for supplier performance review is a quarterly evaluation!

Vendorful is changing that, with a new solution for providing supplier performance KPIs at the speed of modern business. Join us on January 10th at 11:00am Eastern Time to learn how you can leverage your existing ERP and other enterprise IT systems to get real-time intelligence on performance across your entire supplier base.

European Car Sales Hit Lowest Point Since 1996

Let’s be honest: It has not been an easy recovery from the covid pandemic. Consumers are reluctant to go through with large transactions like buying a car. Meanwhile, global supply chain issues make finding new vehicles at dealerships challenging.

Decline in Europe

The result: car sales are continuously dipping. In Europe, new car sales have plummeted to the lowest rate in over two decades.

European Automobile Manufacturers’ Association (ACEA) reported that passenger car sales in the European Union were down 15.4% from last year. All four of Europe’s leading car markets—Germany, Italy, France, and Spain—saw sales decline by 18% from a year ago.

The decline in sales follows Europe’s trend in the first half of 2022. According to ACEA, new car registrations have decreased by almost 14% compared to last year. The United States has also seen a similar slide at around 16%.

Supply

In a statement Friday, the ACEA said the supply chain crisis is the main culprit for sales decrease.

The global chip shortage has also damaged the automotive industry. East Asian suppliers, which supply about 3/4 of the worldwide computer chip production, have been slowed down by pandemic-related lockdowns and labor shortages. European manufacturers have not been able to keep up with demand. ACEA director general Eric-Mark Huitema told EU officials last year to increase domestic chip production to lower Europe’s dependency on foreign suppliers.

“We see a structural undersupply in 2022, which is only likely to ease somewhat in the third or fourth quarter. The situation should improve in 2023, but the structural problem will not yet have been fully resolved,” said Arno Antlitz, chief financial officer at Volkswagen, back in April. Volkswagen’s sales fell by more than any other European carmaker last month, according to the ACEA.

The chip shortage is not the only factor causing declines. The Ukraine war has also cut off the supply of one essential vehicle production part: wire harnesses. Wire harnesses are the electrical components that run through vehicles and relay information and power. 7% of all wire harness exports to the EU are from Ukraine. The shortage has led some European automakers to produce harnesses in-house.

Although all these factors have led to decreasing auto sales, shortages of semiconductors -or microchips- have seen slight ease in June. European carmakers like Mercedes and BMW have seen supply and production normalize. Volkswagen has also shown optimism for the rest of the year.

Demand

Even with supply chain issues clearing up, automakers have been dealing with falling demand. Rising inflation rates in the U.S and Europe have consumers holding on extra tight to their wallets.

In their latest forecast, LMC Automotive wrote about the “underlying demand that has weakened in recent months—a result of a worsening economic outlook.”

High gas prices have made driving unattractive for future car-buyers. In a recent survey, Quicken loan provider found that Americans are cutting back on driving because of inflation: 66% of respondents said they had reduced their time behind the wheel.

Volkswagen CEO Herbert Diess told Bloomberg last week, “We are a little bit cautious about the outlook next year. We can significantly reduce the waiting times, but we are also not really doubling up capacities because the world will remain unstable. That’s our assumption, so we have to be a bit cautious.”

Supply Chain Forecast for the Rest of Summer

Trying to get through a global pandemic can be challenging. The global supply chain’s unpredictability has consumers and business owners what is available and affordable. Predicting specific outcomes can be a make or break for survival. Unfortunately, we cannot predict the future perfectly, but we have clues to help forecast more accurately.

Understanding the Pandemic

Before the pandemic started, chip manufacturers began to struggle. Microchips, used in everyday items like our smartphones, laptops, and cars, saw a slowdown in production. Then the pandemic hit, and people were stuck at home.

Being home came with many new challenges. People were bored but also needed to work remotely. This increased demand for microchip-dependent items like laptops and computers, but it did not stop there. Consumers also wanted things like desks and equipment for exercising at home. This also increased demand for goods.

With demand increasing but the pandemic putting the world at a halt, companies could not get the microchips or goods needed to produce their items. Consumers were panicked and overbought. Demand rose even higher, and businesses could not meet production and distribution. A bicycle can have the frame made in France but need the tires from Germany, so even if one country was doing better, production of goods could not be met.

As you can see, this was a recipe for disaster.

Moving Forward

Due to everything that has happened in the last two years, companies will look to create more opportunities for operations at a local level instead of having to rely on outsourcing with international partners for the completion of production. For example, Ford, now focusing on transitioning to electric vehicles, is investing in creating new automotive production jobs in Michigan.

 Allocation

Allocation is a term being used in every industry now. If you own a business and usually buy 50 units of one item, a supplier might only allocate 40 units. This could be an issue for your business. What if it is an item that does well? Now you are getting less. What if you want to get 100 units to stockpile, just in case? You may turn to another supplier, which could mean settling for inferior quality items. This can be a considerable risk to customer satisfaction.

Inflation

Another hot topic is inflation. Prices and debts are expected to increase to accommodate the rising inflation rates.

The price increase can be seen in gas stations or even smaller items like bread. A loaf of bread that used to cost $3 is now $5 to help pay for the increased production prices, transportation, and labor.

Interest rates are gradually increasing as well. For example, if you are taking out a loan, the interest rate can be a minimum of 5% as opposed to the usual 3%. According to Bloomberg Economics, the average American family will need to spend an extra $5,200 annually to maintain the same living level as the previous year.

Summer’s (Almost) Over

Summer will not last forever, and the problems contributing to global supply issues will eventually end. The next few months will not be easy, but they will not be impossible to overcome.

When Will Supply Chain Return to Normal?

Supply strains, although still significant, are no longer as menacing as they were six months ago. The stress has eased from peak levels (especially in the U.S.), adding less inflationary pressure. Although there have been modest improvements, as the economy recovers from the pandemic, an oversupply of goods may lead to a slowdown in demand that could reverse growth.

Will the cycle repeat itself?

“Pressures in the global goods sectors, which have been a central driver of inflation, may finally be easing. The bad news is that this looks to be occurring on the back of a slowing in the global consumer’s demand for goods, especially discretionary goods, and thus may also signal rising recession risks,” says Citi economist Nathan Sheets.

Citi analysts cautioned against declaring an “all clear” on the supply front, as global supply chain clogs will likely remain for some time. This year’s holiday shipping can be pressured and obstructed by labor strikes, factory disruptions tied to Covid outbreaks in China, and Russia’s war in Ukraine.

Demand

Demand for merchandise is critical to watch in the coming months, so economists are concerned about whether it will stay consistent. One private indicator suggests that as people dine out, see shows and travel more than they did during the pandemic—demand may return to normal.

The Post-Covid Indicator, created by Flexport Inc., monitors how Americans spend their paychecks. The most recent report:

“Consumer preferences shifted slightly away from goods in May.” The indicator is forecast to “hold close to current levels throughout the third quarter of 2022. That would imply that overall consumer preferences for goods over services will decline but remain slightly above summer 2020 and pre-pandemic levels.”

Federal Reserve

The Federal Reserve is set to raise interest rates later this month to combat the increasing inflation. Also, businesses continue to deal with supply problems, but the central bank’s recent reports suggest that these issues are less severe.

Shortages

Freight rates have dropped abruptly from the record highs they’ve reached in recent months, leading some observers to question whether there is now too much capacity available—a situation that had seemed unlikely just a short time ago.

While container rates have risen above pre-pandemic levels, their trajectory increasingly reflects a slide that still has not found the bottom amid uncertainty about consumer spending.

Returning to Normal

The global supply chain’s recovery depends on China’s ability to keep factories open amid recent covid outbreaks. On Thursday, the country released figures showing that June was its second-highest export month in at least three decades. After Shanghai lifted its restrictions on the spread of viruses, production rebounded and delivery times shortened.

On the other hand, Europe, for its part, is facing problems with shipping because of conflicts in Ukraine and the associated sanctions on items to and from Russia. Labor disruptions in one of Germany’s largest seaports have also slowed the global supply chain.

Supply

Another indication that the supply stress is not likely to recover soon is the Commerce Department’s most recent report. The report showed that American sales rose more than the economists forecast in June.

After examining the latest numbers, Yelena Shulyatyeva and Andrew Husby of Bloomberg Economics concluded that “there’s still enough momentum for the US economy to grow during the rest of 2018 as consumers find ways to cope with surging inflation.”

This could be good news for container imports into the US, which have been consistent all June and most of July in major ports in California.

Optimism for the U.S

Gene Seroka, the executive director of LA’s port, is cautiously optimistic about the rest of 2022.

“We’ll be seeing back-to-school, fall fashion, Halloween, and the all-important year-end holiday goods coming across the Pacific in the weeks and months ahead. Even though some retailers have high inventories and may look to discount goods, I expect imports to remain strong – though tapered -versus last year.”

Despite the optimism, there is congestion building causing delays in one of LA’s docks. Containers are sitting for about eight days; ideally, the time should not exceed two weeks. “Stakeholders need to take action now to avoid a nationwide logjam,” warns Seroka.