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This Week in Supply Chain News (February 19 – 23)

By February 23, 2024Uncategorized

This Monday was President’s Day. President Biden’s Oval Office has both a portrait and a bust of Abraham Lincoln. But his family’s connection to the 16th president extends back to the Civil War. On March 21, 1864, an ancestor of Biden got in a knife fight with another man in a Union military encampment. Biden’s great-great-grandfather was charged with attempted murder and incarcerated for a term of two years of hard labor on a remote island near modern-day Florida. Three army officers who knew the ancestor – Joseph Robinette – petitioned Lincoln to overturn his conviction. They testified that Robinette had, from the outbreak of the war, been “ardent and influential in opposing traitors and their schemes to destroy the Government.” On Sep. 1. 1864, Robinette was pardoned for the remainder of the term.

And now on to this week’s logistics news.

The Red Sea crisis impacts global supply Chains

GlobalFoundries Receives $1.5 Billion Grant to Strengthen Chip Supply Chain

NVIDIA Announces Financial Results for Fourth Quarter and Fiscal 2024

Taking Stock of Retail Inventories

Walmart’s Earnings Call Is A Delight For Supply Chain Professionals

Home Depot Addresses Supply Chain Issues in Fourth Quarter Call

’They lied’: plastics producers deceived public about recycling

Data from Infor Nexus highlights a notable surge in transit times for shipments attributed to the Red Sea crisis. The most significant delays are evident in shipments originating from Asian ports destined for Western Europe and the East Coast of the United States. Particularly affected are routes from Asia to Germany, experiencing a remarkable 55% increase in transit times, resulting in an average delay of 12 days. Similarly, shipments bound for New York and other East Coast ports are grappling with delays of up to 11 days. These disruptions significantly impact just-in-time inventory systems and cause substantial upheaval in the supply chain schedules of numerous organizations. Infor, because of Infor Nexus transportation and visibility solution, has excellent data on global shipping.

As US and China relations continue to deteriorate, the US seeks to protect the global semiconductor supply chain by encouraging the building of foundries in the US. The Biden administration on Monday announced a $1.5 billion award to the GlobalFoundries. This is the largest award to date out of $39 billion in direct funding under the CHIPS and Science Act aimed at revitalizing semiconductor manufacturing in the United States. Currently, just 12 percent of chips are made in the United States, with the bulk manufactured in Asia. During the pandemic, a chip shortage led to disruptions in a wide variety of industries. GlobalFoundries will also make available another $1.6 billion in federal loans. The grants are expected to triple the New York headquartered company’s production capacity in their home state over 10 years.

Artificial intelligence was already hot. Then ChapGPT unleashed a blizzard of additional activity. Every significant enterprise and supply chain software company has announced plans on how they plan to incorporate generative AI into their solution set. Supply chain organizations are being pressed by top management to explain how they are using AI in their operations. Nvidia is the most prominent producer of semiconductor chip technology powering generative AI. Nvidia released its fourth quarter earnings this week. Nvidia’s explosive growth continues. They reported revenue of $22.1 billion in the quarter and $60.0 billion for the year. Year-over-year revenues were up 265%. Currently, much of the revenue comes from data center sales. As Moore’s Law slows while computing demand continues to increase dramatically, and Nvidia holds a significant technological lead in this area, the company is poised to grow quickly for years to come.

It is no surprise that the operation of supply chains affects the economy. According to the Bank of America Institute, by early 2023 the pandemic caused retailers to have too much stock on their hands. This added to downward inflationary pressure. Bank of America data suggests the inventory/sales ratio could be close to levelling off. Bank of America uses their corporate dataset to track US retailers’ payments to transportation companies as a proxy for their orders to suppliers. If, as they believe, the inventory/sales ratio is levelling off, then the downward pressure on goods price inflation from destocking will be a thing of the past.

Walmart Inc. (NYSE:WMT) released its fourth-quarter earnings on Monday. They reported a 4.9% increase in sales and a 10.9% rise in operating profit in constant currency terms. The retail giant achieved over $100 billion in global e-commerce sales, marking a significant milestone. Their ongoing supply chain transformation strategy contributed to the results; Walmart’s focus on omni-channel growth and e-commerce capabilities were key contributors to an improved top line. Customers, they argue, are beginning to recognize that they can come to Walmart for convenience just as much as they can on price. That actually helps improve the profitability of this channel for Walmart, although this channel is still not profitable.

And Walmart’s experience suggests the Bank of America analysis could be right. After having too much inventory for several quarters, driven by supply/demand mismatches caused by COVID, they returned to inventory efficiency. The world’s largest retailer had lower markdowns, improved in-stock service levels, and lower inventory. Walmart’s U.S. inventory was down 4.5%, Sam’s was down over 8%. In the US, the company is investing in heavily automated distribution centers that they predict will lead to a higher level of inventory accuracy over the next few years. Walmart reports that investments in artificial intelligence have also improved inventory management. Sam’s Club performed 35 million fewer tasks in the store last year. A lot of that was artificial intelligence that helped associates manage inventory better.

The company’s patent-pending AI-powered inventory management system positions products according to customer demand. For example, their AI can recognize a top-selling toy in a particular region, and automatically send more items to those stores. And if a toy is selling better in the Midwest compared to the East Coast, we can reposition inventory to that area of the country.

Home Depot (NYSE:HD) also had an earnings call this week. In the fourth quarter, they reported that sales decreased by 2.9% from last year. At the beginning of the year, the company announced an investment of approximately $1 billion in increased annualized compensation for frontline hourly associates to reduce attrition and improve service. They believe they are gaining traction in these areas.

On the positive side, they also reported improvements in their inventory position – down 16% year over year – while improving their in-stock levels. They report that their in-stock position is the best it has been in several years.

The home improvement chain also reported on their ongoing work to improve their omnichannel capabilities. Last year, the company enhanced their systems to better allow customers to both modify orders and engage in self-service online returns. In 2024, they will focus on further building out an interconnected self-service returns process where customers will have the ability to start a return online and complete that return via mail or in-store. Management argues that these enhancements will reduce transaction times and improve on-shelf availability.

For Home Depot, contractors or“pros” are key customers. Home Depot is seeking to have more job site deliveries fulfilled from their distribution centers. This will mean less congestion in the stores and less time dedicated to picking, packing and staging orders for delivery. This, in turn, will give their in-store sales associates more time to dedicate to their pros. The retailer also believes fulfilling large orders through their distribution network will increase the amount of product that is in-stock.

The Guardian reported that “plastic producers have known for more than 30 years that recycling is not an economically or technically feasible plastic waste management solution. That has not stopped them from promoting it. Plastic, which is made from oil and gas, is notoriously difficult to recycle. Doing so requires meticulous sorting, since most of the thousands of chemically distinct varieties of plastic cannot be recycled together. Another challenge is that the material degrades each time it is reused. This means materials can generally only be reused once or twice. The industry has known for decades about the near impossibility of making this reverse supply chain operate effectively but intentionally misinformed consumers with deceitful marketing campaigns.

That’s all for this week. The song of the week is Stevie Wonder I Just Called To Say I Love You (youtube.com)

The post This Week in Supply Chain News (February 19 – 23) appeared first on Logistics Viewpoints.

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