Articles in Category: Logistics

Dr. Christopher Bayer, Ph.D., of the Payson Center for International Development of Tulane University Law School, recently responded to an e-mail interview with MetalMiner Editor Jeff Yoders about the recent Conflict Mineral Benchmarking Study he led of Dodd-Frank Conflict Minerals compliance.

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More than three years after U.S. companies began filing reports about their efforts to find conflict minerals linked to armed militias in Africa in their supply chains, 65% say they still can’t make a determination about what minerals are in those chains. Bayer explained more in this MetalMiner Q&A.

Chris Bayer. Image courtesy of Tulane University.

Chris Bayer. Image: Tulane University.

Jeff Yoders: Analysis of the reports shows that conflict-minerals reports are boosting supply-chain transparency for many of these companies. Is that an added benefit to reporting?

Chris Bayer, PhD: Yes, a company can use Dodd-Frank Section 1502 to gain insight into its own supply chain, to a degree that would probably not have been previously possible. Whether and how companies may leverage that to their advantage is up to them, but without question, information is power. Quite a number of companies are weeding out non-performing suppliers in their supply chain according to their defined parameters on conflict minerals.

JY: 10% Of all filers said, or implied, they had conflict-free products. What did you and your team’s research tell you about these claims?

CB: First off, it is in fact an extraordinary claim for a company to make. A whole lot of work would go into ruling out the possibility that the company is indeed not — through its procurement practices — fueling conflict in the Democratic Republic of the Congo. Your due diligence inquiry is, by definition, very involved, given the sheer amount of tiers and suppliers to traverse on average. But as per the Securities and Exchange Commission, a company should take care not to designate is products as DRC conflict-free unless it can also provide independent assurance that would lend credibility to such a claim.

JY: Incomplete reports were still an issue. How long do you think it will be until companies can, at least, fill out complete reports?

CB: Since many companies are already able to achieve full compliance — including reporting smelter Or Refiner (SOR) and Country of Origin (COO) data — the we-need-more time argument becomes less plausible.

JY: More companies underwent product audits this year. Are outside product audits necessary for full compliance?

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CB: A company that does not opt to use the “DRC conflict free” designation is, as per the SEC statement of April 29, 2014, not required to have an independent, private-sector audit performed.

We’ve previously written about how the U.S. government now pays more than a penny for the zinc required to make one penny, so when we saw this, it was a natural follow-up.

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In a letter this week to U.S. Treasury Secretary Jacob Lew and U.S. Mint Principal Deputy Director Rhett Jeppson, Institute of Scrap Recycling industries President Robin Wiener requested that the Mint reconsider its blanket moratorium on the repurchase of mutilated coins. ISRI requested an opportunity to meet with the appropriate representatives of the Mint and the Treasury to discuss this matter in further detail, too.

"Men, the real money is in selling zinc to the Mint to make nickels and pennies." Source: Adobe Stock/Bonzodog.

“Men, the real money is in selling zinc to the Mint to make nickels and pennies. not this smelting stuff. ” Source: Adobe Stock/Bonzodog.

Mutilated coins, such as the ones between the seat cushions of your old car that you’ve taken to get scrapped or even the pennies you placed on train tracks as a kid, could be a real boon to scrap yard recycler/operators. As scrap, they’re already cheaper than that more-than-penny-zinc the Mint buys to make new pennies and nickels. Read more

One of my British colleagues forwarded me this Bloomberg article about several German automotive original equipment manufacturers — including BMW, Volkswagen, Robert Bosch, ZF Friedrichshafen and Daimler — who were apparently “raided” by a German regulator for creating a steel buying cartel.

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Funny thing is, here in the States, we call these groups “buying groups” or “group purchasing organizations.” For the life of me, I can’t figure out how a GPO extracts pricing that would somehow harm a consumer. What would they do? Pass on too much of their savings to their customers?

Volkwagen Rabbit toy with coins.

Can German automakers set prices for the steel used in a Volkswagen Cabrio any more than Hot Wheels can set the price of plastic for this tiny version of one? And why don’t they still call it the Rabbit? That was a great car name. Source: Adobe Stock/VRD.

The details appear quite scant: in June, a raid occurred at six automotive OEMs and at least two Tier 1 suppliers (Tier 1 companies are direct suppliers to OEMs). According to Bloomberg, “antitrust rules may have been violated.” Read more

Last week at the SAP Manufacturing Industries Forum in Lombard, Ill., we got a glimpse into how Toyota Material Handling North America is helping its customers with information about the equipment they use and how TMHNA manages all of that collected user information using SAP’s Hana database management system.

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Alan Cseresznyak, CIO and Senior Vice President of TMHNA — the seller and dealer network of all Toyota forklifts and other material handling products on the continent — explained that part of TMHNA’s digital transformation has been helping its customers keep their forklifts and other machines efficiently running.

TMHNAforklifts_550_062016

Many people know Toyota by its cars and its production system but the company is innovating in its materials handing business as well. Source: TMHNA.

“We can identify which parts are breaking down,” Csersznyak said. “We could find out when a certain bolt is breaking loose. Using this data we can also earlier identify and correct manufacturing problems.”

TMHNA’s strategy for service mirrors its customer relationship management strategy.  Csesznyak said TMHNA already forecasts demand from its CRM system. Every single outstanding quotation is created from the CRM system. Profit margins for TMHNA, individual dealers, and other relationship information is all in the system.

Using SAP Hana and other tools, TMNHA desires to have the same type of setup as CRM system for maintenance, with sensors built into individual parts to create a better ability to capture whole unit operations data.

“The cost of getting maintenance done is not a major cost for any of our customers,” Cseresznyak said. “What they are looking for is more uptime. The more we know about individual maintenance, the more uptime we can provide. On the car side, they used to recommend an oil change every 3,000 miles, now it’s 7,500 miles because of better data.”

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TMHNA has its own engineering department and Cseresznyak said they will build their own sensors if need be.

“We don’t believe it’ll be a major cost on the forklift to purchase the sensors provided we can provide that uptime and superior customer service,” he said. “Devices for telematics used to be thousands of dollars. Now, we are adding a CalAmp device that’s under $200. Everything is becoming commoditized.”

While London Metal Exchange warehouse queues have all but disappeared, with the exception of Vlissingen in the Netherlands for aluminum and New Orleans for zinc, the even better news is physical delivery premiums have dropped back closer to historically lower levels and more importantly taken on a flat, stable pattern.

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As Reuters’ Andy Home points out in a recent article, the reasons for the horrendous spike in physical delivery premiums last year were always contentious and, in reality, multiple in origin but arguably long load-out queues played a part, although we always maintained they were as much symptom as cause of a deeper malaise in the physical aluminum market.

Aluminum Premiums Easing

Still, the return to a steady $170-180 per ton level for the Midwest premium and a stable range of $90-120 per metric ton range for Japanese Port premiums is a welcome relief for consumers after the sky high levels of 2014-15 when Japanese rates hit $425 and the MW premium was well over $500. Read more

OPEC oil export revenue is down and if Hong Kong Exchanges and Clearing Ltd. can’t bring China to the London Metal Exchange, it’ll bring the LME to China.

OPEC Export Revenues Down Again

OPEC’s full-year 2016 oil export revenues will probably fall 15%, down for the third straight year and possibly the lowest in more than a decade before rising in 2017, the U.S. Energy Information Administration (EIA) said on Wednesday.

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Members of Organization of the Petroleum Exporting Countries (OPEC), including Iran, will likely earn about $341 billion in 2016, about 15% below 2015 levels, based on projections of global oil prices and the group’s production levels, the U.S. government’s EIA said in a report.

HKEx Tries Bringing the LME to China

Some four years after shelling out a top-of-the-market $2.2 billion for the London Metal Exchange, it appears owners Hong Kong Exchanges and Clearing Ltd. (HKEx) are still battling to make the venerable old Western institution work with China, the new and dominant center for metal demand.

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HKEx Chief Executive Charles Li used the LME Week Asia seminar today to tout the latest plan, which involves bringing the LME’s expertise in physical metals markets to China, where financial instruments dominate trade.

Scrap companies often get a bad rap. Yet some of the more sophisticated ones clearly provide tremendous value by elevating the procurement function within manufacturers.

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Separated scrap. Photo: United Scrap Metal.

We recently caught up with Brad Serlin, President of United Scrap Metal Inc., and toured their Cicero, Ill., operation to better understand what makes a “best in class” scrap recycling program and why most manufacturing organizations need to formally manage these types of programs. Read more

CNBC recently reported that home construction weakened in March even as sentiment among builders remained high, but what’s more interesting is a quote from a Goldman Sachs report further down.

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“Our analysis of payroll growth and wage inflation data suggests that labor shortages may not be to blame for the mediocre level of housing activity,” analysts wrote in a Goldman report. “We find that, on the one hand, the construction sector has experienced the largest job growth over the past year.”

Construction_yoders_550_030116

U.S. Construction workers are using 3D imaging, laser scanning and drones to place structural members like this one. Can the skilled labor shortage possibly be over? Source: Jeff Yoders/MetalMiner.

Construction growth has led all other sectors at 5%, according to the Bureau of Labor Statistics, but average hourly earnings in construction gained only 2.2% over the past year, which is about the national average.

Still, Goldman’s pronouncement that there’s simply no construction labor shortage anymore very much runs the opposite of what the industry has claimed for years. The numbers only tell half of the story because a lack of skilled labor is what plagues most construction sites.

Nearly 70% of home builders surveyed by the National Association of Homebuilders last June reported a shortage of carpenters, for example, up from 63% in 2014. And in a July survey by the Associated General Contractors of America, 86% of commercial builders said they’re having trouble filling hourly or salaried positions, up from 83% last year.

This may not look like it affects the bottom line to Goldman-Sachs, but it certainly does when only carpenters, iron workers or electricians can move your project along.

Many high schools have phased out shop classes and parents increasingly have steered graduates to four-year colleges and white-collar careers. The Home Builders Institute, which does training, and local home builders groups, recently rolled out more instruction programs but it takes at least 12 to 18 months for a new recruit to become a productive worker. That’s why pay increases had reached as high as 2.6% last year before falling back down to around the national average that Goldman cited. It’s likely a small rest in the rate of increase rather than a full stop, as unfilled job openings in the construction industry have risen steadily since 2009.

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So, while I respect Goldman Sachs and its analysts’ learned opinions, I’m not ready to bless this report’s findings and call the skilled construction labor shortage over. Mike Rowe may have to fill all of the dirty jobs that are still out there before that happens.

Regardless of where you sit in metals markets, liquidity and cash flow serve as the lifeblood of the supply chain and the individual company.

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Manufacturers, service centers and producers largely play a zero-sum game: optimize working capital at the expense of broader total-cost, innovation and risk-management opportunities that ought to bring all parties closer together.

In a zero-sum game, buying organizations — when engaging directly with suppliers — often deploy forceful if not arbitrary rules around payment terms, delivery terms and even the reduction of inventory levels (another tool in the working capital arsenal). All of these tactics are used in a game called “reducing working capital” but each introduces additional risks as well.

Inventory Finance and the Big Picture

Managing inventory effectively, as part of a broader working capital management and/or balance sheet improvement strategy, matters even more in volatile markets, particularly when doing so without negatively impacting supplier relationships. Fortunately, some new techniques and business practices based on inventory financing tied to broader procurement and supply-chain strategies have started to become more mainstream. Manufacturers, service centers, producers and even trading firms have begun working with banks, trading firms, third-party lenders and other partners/lenders (or a combination) directly.

In short, procurement and supply-chain inventory financing can allow an organization to build on its balance sheet and/or take advantage of additional liquidity if needed. None of these forms of financing or techniques negatively impact suppliers.

Procurement-led inventory financing is a complement to other sources of capital. Even for organizations with a tight revolving credit facility, they can still access unsecured credit and “lock-in” balance sheet improvement opportunities without sacrificing actual physical inventory.

What Can It Do For Me?

Done right, procurement-led inventory finance offers a range of benefits:

  • Working capital and balance sheet improvements that align with executive, procurement, treasury and accounts payable strategies
  • An ability to keep current credit facilities and tap new ones
  • Low risk and predictable capital: another “tool” in the working capital belt with assured outcomes (unlike other options)
  • Supply-chain risk reduction
  • Improved supplier relationships
  • Lower landed cost of goods
  • Ability to source globally without impacting working capital

Inventory financing approaches today are changing in part because of increased available capital and a willingness to lend. In addition, new technologies provide increased transparency and connectivity between buyer and supplier systems,  reducing risk for all participants.

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As our introduction to the topic continues, we’ll explore how inventory finance works as well as some of the new tools and models that can streamline the process. In the meantime, for further reading on the topic, see our network site Trade Financing Matters:

Stepping Out of the Box – One Bank assists with Inventory Finance

Inventory Purchase Financing – The Flip Side of Funding Trade Payables

Inventory Purchase Financing – The Flip Side of Funding Trade Payables (Part 2)

The classic “cost breakdown” gets a bad rap these days.

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It seems like an old school concept, but we’d argue it’s getting a new lease on life as procurement organizations seek more strategic supply market intelligence insight.

Cost breakdown analysis

Cost breakdown analysis can create a competitive advantage for your business. Source: Adobe Stock/Morchella.

In fact, in recent weeks we’ve fielded an increasing amount of phone calls about obtaining metal price data for both should-cost and total-cost models. These organizations range from the small manufacturer seeking to renegotiate supply contracts with Chinese suppliers to large retailers seeking to develop supplier should-cost models for negotiation purposes.

Recently, Bertrand Maltaverne of software provider Pool4Tool and formerly of Schneider Electric, led a webinar discussing the concept of TVO (total value of ownership) and walked the audience through several distinctions between TVO and its cousin, TCO (total cost of ownership).

For more specifics on how to model TVO for your organization, join us at the ISM/Spend Matters Global Procurement Tech Summit where I will be co-leading a workshop on Cost Breakdown Analysis with Pool4Tool Founder and CEO Thomas Dieringer.

As someone who has led many workshops and discussions on TCO, the distinction between TVO and TCO should compel all buying organizations to take a second look at this potential source of competitive advantage. Consider the following:

  • TCO considers the “cost basics” such as direct material costs, direct labor costs, direct operating and process costs, manufacturing overheads, research and development, selling general and administrative expenses, etc. plus profits.
  • It also considers entire life-cycle costs from the purchasing market, research costs, insurance, staff training, switching costs as well as ongoing operating costs such as consumables, spares, etc. to end-of-life disposal costs such as site cleanup, decommissioning costs, etc.
  • TVO, on other hand, considers other factors not traditionally incorporated into “should cost” models. These factors might include value drivers such as productivity gains, risk reduction such as CSR risk, financial, logistics and quality; it is expressly tailored to the specific objectives of the buying organization.

Two other elements make TVO unique — the first involves internal collaboration across functions in defining value and the second involves integration of those functions and subsequent processes into the procurement evaluation process.

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These integrated processes become crucial in helping define category strategies, supplier evaluations and risk management practices. If this sounds theoretical, it is not. Consider how some organizations view sustainability, for example, as a key driver of shareholder value. And though we folks in procurement often focus on shareholder value in terms of COGS or reduced SG&A expense, TVO makes metal buying a whole lot more strategic.

Relative performance, not absolute performance, also drives value, according to Pool4Tool. Companies that develop index-based models reflecting real market prices (MetalMiner has long advocated them and, in the name of full disclosure, provides such data) and sophisticated cost models have a leg up over organizations that don’t use these tools.

Follow Lisa Reisman on Twitter @LReismanMM