This is the second in a two-part interview with Paul Noel, senior vice president of procurement solutions at Ivalua, Inc. Missed Part 1? Read it here.
MetalMiner: How do you see procurement and supply chain applications overlapping (or not) from a technology perspective in manufacturing? What is “the line” between them (if there is one anymore)?
Paul Noel: Procurement and supply chain applications traditionally overlap. Both these applications have the following:
- Supplier master data and item master data
- New product introduction data, such as BOM, designs, specifications and project plans
- Product quality data, such as initial reviews, quality certs, first article inspection data, APQP reviews and data
- Supply chain and supplier risk data
- Supplier performance, KPIs and error data, along with improvement plan data
- Assets and tooling data, including supplier loaned and leased assets
- Inventory data, such as central, in-factory stock-rooms, vendor managed inventory data, etc.
Our view is that procurement applications are developing and innovating at a more rapid pace than supply chain applications when it comes to affecting core business operations, expanding their functional footprint into the supply chain, and in some cases, becoming the primary master source of record (e.g. in case of supplier master and risk data). As an analogy, procurement applications today represent multiple “garage bands” — some in the process of becoming rock stars — of the business, while supply chain is a conductor, orchestrating activity deep within the supply base. Both are different — and needed.
Supply chain is, however, continuing to orchestrate activity.
MetalMiner: What is your view on commodity price volatility? What are you hearing from your customers?
Paul Noel: The most current information is key, of course. That means that when you are buying volatile commodities, you need to have a facility to quickly perform item validations with contracted vendors to ensure you are seeing the best price for the current market. In some industries, it needs to be a lights-out operation that reminds suppliers of their commitments and solicits their re-bids on a schedule. This isn’t just asking for the latest price, but also changes in packaging, lead time, ship-from information and so forth.
MetalMiner: What about pricing trends in commodity markets?
Paul Noel: Our view is aligned with the World Bank’s April 2017 Commodity Market Outlook. The World Bank is forecasting higher prices for industrial commodities, principally energy and metals, in 2017 and 2018. The World Bank, in its April commodity markets outlook, held crude oil price forecast steady for this year at $55 per barrel and increasing to an average of $60 per barrel in 2018.
Rising oil prices, supported by production cutbacks by Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC states, will allow markets to rebalance gradually. Prices for energy commodities, which also include natural gas and coal, are projected to jump 26% this year and 8% in 2018. In line with oil price forecasts, natural gas is anticipated to gain 15% this year, led by a jump in U.S. prices. Coal is seen climbing 6% in 2017, due to earlier supply restrictions in China, which consumes half the world’s coal output.
Prices for non-energy commodities, which include agriculture, fertilizers, and metals and minerals, are forecast to increase in 2017, the first rise in five years. Metals prices are projected to jump 16% this year due to strong demand, especially from China, and supply constraints, including mine disruptions in Chile, Indonesia and Peru. Labor strikes and contractual disputes at large mines have contributed to higher copper prices.
However, precious metals are expected to decline by 1% this year and 1% next year as benchmark interest rates rise and safe-haven buying ebbs. Among the components of non-energy commodities, the agriculture price index as a whole is expected to remain stable this year, as declines in grains are expected to be offset by price rises for oils and meals and raw materials. Beverage prices, which include coffee, cocoa and tea, are forecast to drop more than 6% in 2017 due to greater-than-expected supply. Agricultural raw materials are projected to rise by 4%.
We expect volatility to continue due to continued uncertainty over global growth, retreat from global trade due to nationalist economic policies, and interest rate and tax policy uncertainty that have the potential to re-draw supply chains. Further, uncertainty over the new administration’s legislative agenda, a divided Congress and potential government shutdown only add to the volatility.
MetalMiner: If you had $100 to invest in different procurement technology-centric solutions in a manufacturing context, how would you divide it up (assuming only MRP/ERP as a baseline)? In what areas would you place your bets, and in what order?
Paul Noel: We would place our bets in different procurement technology-centric solutions in a manufacturing context as follows:
- Supplier and order collaboration: $20
- Supplier and item master data management: $20
- BOM centric-sourcing with cost breakdown analysis: $20
- Supplier risk management: $10
- New product introduction project reporting: $10
- APQP support and quality certs: $10
- Support for Kaizen/improvement projects and corrective action reporting: $10
Ivalua (in full disclosure) has a footprint in each of these areas and we see our expansion into deeper capability to support each as evolutionary and organic.
MetalMiner would like to thank Ivalua and Paul Noel for his thoughtful input and analysis.