Fincredible MacroTalk October 6: Supply Chain Disruptions
Comments on supply chain issues from $COST $NKE $LEN $AZO $GIS $VNCE $HOFT $JOAN $MU $HPE $SCS $NEOG
If you’ve recently had trouble finding certain goods in stores, or seen prices rise significantly in some items, it’s probably because of the global supply chain issues COVID-19 created. The impact was so large, almost two years into the pandemic the issues are still affecting the world economy.
Companies like Nike are seeing stronger demand than ever before, only to miss sales estimates due to low inventories. Retailers like Costco, homebuilders like Lennar, and chip producers like Micron have all suffered supply chain disruptions that have affected their business outcomes.
Given the importance of supply chains on business performance, inflation, and economic growth, we’ve decided to dive into the topic. In this post we’ve compiled the best quotes from recent earnings calls regarding current supply chain issues. Quotes are sourced from Fincredible.
Consumer Goods
Out of all of the earnings calls analyzed from the past couple of months, consumer goods companies stand out. The range of problems these companies are facing is significant: port delays, COVID disruptions, longer lead times, shortages of labor, truckers, raw materials, containers, etc., and others.
The impact is profound. For example, Nike mentioned that lead times have doubled during the pandemic, while JoAnn mentioned their freight costs have gone up 10X from their historical average.
“From a supply chain perspective, the factors pressuring supply chains and inflation include port delays, container shortages, COVID disruptions, shortages on various components, raw materials and ingredients, labor cost pressures and trucker and driver shortages -- trucks and driver shortages. Domestically, anecdotally rather, from -- even on the domestic side, various major brands are requesting longer lead times, some cases, difficulty in finding drivers and trucks on short notice. Lead times on ingredients and packaging have been extended in some cases.”
Richard A. Galanti, CFO
“Over the last 90 days, 2 things have happened in the industry that we didn't anticipate. First, already long transit times worsened; and second, local governments mandated shutdowns in Vietnam and Indonesia. Keep in mind that there are global complexities and differences in transit times and sourcing mix across our geographies, so I'm going to use North America as an example to just go a little deeper on what I'm talking about. Prior to the pandemic, it would have taken approximately 40 days to move product from Asia to North America. Transit times have been increasing due to container shortages, port congestion, rail congestion and labor shortages, impacting the entire industry. And during Q1, these lead times worsened further to now sit at 80 days, roughly 2x normal….
So while the environment is dynamic, these supply chain issues, we believe, are temporary. And from what we can see today, we're optimistic that available inventory supply will be improved as we head into fiscal year '23.”
Matthew Friend, CFO
“Our closing miss for Q3 was driven by supply chain disruptions that led to a general increase in our cycle time to build homes, but also some intermittent shortages that stall production beyond cycle time, causing these closings to be delayed into our fourth quarter. As you've heard from various building product companies, and from other homebuilders, disruptions are affecting different trades at different times and in different geographies. They are intermittent, and they are not over yet. In many ways, it's truly a game of whack-a-mole, creating a traffic jam. Like cars, construction process is backed up, creating a chain reaction of delay that cascades from one trade to the next. The team at Lennar is happily dealing with the situation to manage for the best possible outcomes. Like the rest of the industry, we not only saw our cycle time increase approximately 2 weeks in our third quarter, but we also had additional surprises that quickly changed delivery dates.”
Jonathan M. Jaffe, Co-CEO
“We are running the lowest level of in-stock that I can ever remember. It's 3% or 4% below where we normally run. It moves from one category to the other. This is the most difficult supply chain environment that I have ever seen.”
William C. Rhodes, CEO
“We're seeing a widespread impact, everything from raw material vendors, challenges there, internal manufacturing, co-packer manufacturing and our distribution network. And it's almost whack-a-mole right now. So we have literally hundreds of disruptions in our supply chains, and it really changes on a daily and weekly basis. So we've gone back to some of the practices that served us well at the beginning of the pandemic…. And we do expect these issues to persist throughout the year.”
Jonathon J. Nudi, Group President of North America Retail
“Like many others in the industry, we are experiencing challenges in our supply chain, including factory shutdowns, delayed shipments and port congestion in addition to higher freight costs.”
David Stefko, CFO
“The surge of the Delta variant of COVID-19 has caused factories in our source countries of Vietnam and Malaysia to close temporarily, with recent talk of reopening in Vietnam around September 15. In addition, global logistics challenges with higher freight and transit costs and lower transportation capacity, along with raw materials inflation and some labor shortages remain ongoing.”
Jeremy R. Hoff, CEO
“In that vein, the most critical shorter-term issue we are currently facing is the overall highly stressed supply chain. At the epicenter of which is ocean freight availability and related costs. For perspective, we are currently required to pay as much as 10x our historic average container rate to secure overseas shipments.”
Wade D. Miquelon, CEO
Technology
Technology, especially companies the rely heavily on chips, have been hit the worst. The surge in demand due to the additional computing needs arising from factor like work from home, couple with the tighter supply due to factory shutdowns has been a recipe for disaster. Chips in particular have a very inelastic supply in the short term. Lead times are extremely long, in some cases taking even years, making this a hard to solve problem.
“On the supply chain aspects, of course, this is something that you know that the lead time in the semiconductors is long, and this will take several quarters to continue to improve. Part of the semiconductor supply chain have already seen improvements. Our expectation is that these will continue to improve as well over the course of the coming quarters. And also keep in mind that our industry -- the memory industry, over the course of last couple of years, has tapped into the inventory to ship beyond the supply growth. And this is a phenomenon that has occurred across the industry. Certainly, you have seen that how Micron has brought its inventory to the leanest level in many years, in fact, below our target inventory levels. So this is something that is common to all suppliers in the memory industry. And as we look ahead, the supply growth will not only have to meet the customer requirements, but it will also have to replenish the inventory that has been taken to such low levels. Inventory has to be replenished in order to make sure that we are able to service our customers and meet their demand requirements, which from time to time change. So these are all factors as well, very lean levels of inventory by the suppliers as well as need to replenish that inventory will drive for a healthy demand supply balance in calendar year '22 time frame as well. So yes, some of this in terms of our own supply chain shortages and some that are being experienced by our customers, we expect to be addressed over the course of time. And some of these shortages on the semiconductor ecosystem may take through 2022 time frame -- by the end of '22, maybe some of them will be relieved. However, we expect them to continue to be improving through the course of time all the way through calendar year '22.”
Sanjay Mehrotra, CEO
“And the supply constraints, we don't see them ending before the first half of calendar year '22. So we just have to navigate this as the capacity of all our manufacturing partners is not back to pre-pandemic levels, and that will still take a good 2 to 3 quarters.”
Tarek A. Robbiati, CFO
Industrials
Steelcase CEO explained why supply chain issues are so hard to tackle: the impact is so broad, whenever one problem is solved, another one comes up.
“We don't expect the supply chain problems to go away instantly. And we know the way this works. You fix a few things and then something else pops up. The number of broad supply chain problems we're facing is improving. So we're not talking about steel or foam anymore. Those are sort of systemic issues we face. We do face this challenge of ocean freight and ocean logistics, which affects some of our product lines. And we would expect that to continue.”
James P. Keane, CEO
Healthcare
Noegen CEO spoke at length about the significant price increases they’re seeing in ocean freight, while highlighting the fact that for some low-value products, freight could cost more than the merchandise itself.
“The supply chain disruptions are real, and it's a challenge, and it's an everyday challenge. And it's not just freight cost, it's getting stuff in. And when Hernan came, you think about on the animal safety side, when Hurricane Ida came and shut down the ports down in New Orleans and in the south, you instantly saw the grain prices drop. You couple that kind of with getting ships and getting containers is what we're seeing. I mean, the rise in the container cost is crazy. I mean, if you're moving low-volume products or low-value products, you could have freight be more than what the product is worth, that's nuts. So those are things that are real, and we do address it. So we are raising wages, but we're also doing it in a way where we're trying to be using technology to be more efficient. So where we may have had 10 people at $50,000, we're going to do 8 people at $65,000, where you're going to see that your total cost don't change that much, but there are some cases on the hourlies, where we've just got to get competitive to get people in the door and get product out the door.”
Neogen Corp Q1 2022 Earnings Call
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