Yes. 2022 most innovative idea is not coming from aerospace, or new drugs discovery. It’s as simple as that. Availability. Having your product accessible on the shelves and supporting sales.
But Why? There are mainly 3 factors. Uncertainty led by pandemic, war threats, and sloppy central bank monetary policies; All these have completely destroyed companies predictions. Forecast accuracy is not a priority anymore. Instead, best players have switched their attention to agility and speed to market – reducing cycle times.
Forecast accuracy is not a priority anymore. Instead, best players have switched their attention to agility and speed to market – reducing cycle times
Additionally, Inflation has began to play a critical role for procurement-inbound materials. The most competitive deals are closed by booking suppliers production in advance, and getting favorable T&C from transportation partners.
Finally, Operational Costs have soared to record levels mainly driven by all the above plus labor issues, covid-19 asceticism, less shipment offers, and traditional corporate fix cost structure.
Amazon’s case is very interesting. The biggest supply chain in the world has reported the strongest revenue ever, and at the same time +17% increase in their Cost Of Goods Sold (COGS) Year-Over-Year (YOY).
Exactly the same percentage of increase for Prime membership (US) that was announced hours ago and has made shares rose 13.5 per cent to $3,152 adding about $190bn to Amazon’s market cap.
The largest tech firm has also some difficulties with increasing operational cost.
The robust demand and revenue have been a pandemic-blessing. However, COGS Growth has reached up to +25% YOY (fiscal year ends on Sep). Certainly, big part of this could be explained by the strict supplier actions taken to achieve the sustainability commitment of Apple to be fully carbon neutral by 2030.
Let’s see in more details Cupertino’s inventory. The stockpile and reserves have been historically low since Tim Cook – former COO – took full control as CEO in 2011.
Wow! Apple Total Inventory has gone from $4bn in 2020 up to $6.6bn in 2021. An amazing +62% YOY. In other words, almost a year of inventory (from 530 days in 2020 to 890 days in 2021).
wait a minute, what’s going on here?
Stock build? Yes. It’s crystal clear to me that chip and components shortages had hit very hard.
On the other hand, Luca Maestri – CFO since 2014 and former Nokia, GM – has confirmed that supply disruptions have ‘only’ impacted approx. $6bn of the revenue … in the meanwhile, consumers are struggling all around the globe to get their new Ipad and Iphone.
Focus on Inventory. Use the KISS strategy. As Ray Kroc – McDonald’s founder – favorite motto said ‘Keep it simple stupid’.
Look at Amazon YOY inventory going up to +40%. For the best supply chain this would mean a complete catastrophe. Nevertheless, this is exactly what SALES are demanding – No rocket science here!
Today’s importance of stockpile is completely re-framing worldwide supply chain. Entitlement algorithms must be rewritten – if not, disposed.
Listen to Top Executives earning calls where Q&A are mostly requesting details about supply chain strategy and how they are coping with industry shortages, chips, raw materials, vaccines, and more to come …
Definitely an exciting and vibrant time to be a supply chainer.