Since the end of February, all eyes have been on Russia and Ukraine. The effects of Russia's invasion and subsequent attacks on Ukraine have been devastating – from both a humanitarian and business perspective. Sourcing and procurement professionals, in particular, should brace for inevitable supply chain risks. While it's impossible to predict how, exactly, it all will play out, LevaData does have the data needed to offer some timely and helpful insights.
Direct risks involve supply disruptions directly resulting from the impact of the war in Ukraine. This means sites of product, component, or raw material production that could be shut down either by destruction or the inability to operate during a conflict (shut down due to lack of labor, lack of power, lack of inputs).
Indirect risks derive from supply disruptions due to the collateral impact of the war in Ukraine, namely, the extensive economic sanctions being imposed on Russia (including Russian banks and companies), limiting its ability to sell goods and raw materials into the world market.
In terms of direct or indirect supply chain risks, three key raw materials from Ukraine or Russia may affect global supply chains: neon gas, C4F6 (Hexafluoro-1,3-butadiene), and palladium. All three are used in semiconductor production.
For all three materials, the Taiwanese government, which represents companies that comprise the highest overall foundry capacity globally (including TSMC and UMC), released a statement on February 26th stating that the impact of the war in Ukraine would be minimal for semiconductor supply.
According to the statement by the Cabinet, Taiwanese chip makers use minimal palladium, and neither Ukraine nor Russia is a major source for the little palladium the island does use. Domestic companies also have the ability to refine and "remanufacture" palladium, so there should be no impact, it said.
For neon and C4F6, there are already stocks on the island, and supply chains are diversified, so "the near-term impact is not big," the Cabinet said.
In addition, John Neuffer, Chief Executive of the Semiconductor Industry Association, said in a statement that he, “...doesn't believe there are immediate supply chain risks related to Russia and Ukraine.” But the longer the conflict continues, the more the risk increases, analysts said.
In terms of broader indirect risks, Russia is a major supplier of many raw materials, most notably crude and refined oil. Russia is the world’s third-largest oil producer, supplying 11% of worldwide crude oil in 2020, according to the US Energy Information Administration (chart below):
The threat of potential sanctions on Russian crude and refined oil drove oil prices 30% higher in one week, with Brent crude oil hitting $123/barrel on March 7th. Since then, pricing has eased, but the market remains volatile, reacting to any news on supply – and there is some speculation that it could even hit $200/barrel if the situation worsens.
Higher oil prices have ripple effects throughout the global economy, affecting everything from manufacturing due to higher energy costs, transportation from fuel cost, and input costs (from chemicals that are derived from oil). Worldwide ability to replace the Russian oil supply is limited, especially since the balance between demand and supply was already tight in 2021. Abhi Rajendran of Energy Intelligence, an industry publisher, believes the oil market was undersupplied by some 1M barrels per day (B/D) before the war in Ukraine. The situation is difficult enough that the US is now working on diplomatic solutions to release Venezuelan and Iranian crude into world markets again to mitigate the impact of oil sanctions on the global oil supply. However, whatever is achieved will not bring new supply in the immediate term.
Regarding other raw materials, in 2021, Russia was the 2nd largest world producer of cobalt, platinum, and palladium; 3rd largest world producer of gold, nickel, and aluminum; 4th largest world producer of silver; 5th largest world producer of iron ore; 6th largest world producer of lead; and 9th largest world producer of copper. For instance, since the Ukrainian invasion, the world price of nickel has risen 19% – to a 14-year high of $29,800/metric ton. And for the year so far, it's already up 37%. Palladium is up 57% for the year, and other metals are also experiencing significant price spikes.
Clearly, the impact on global supply chains from the Ukrainian war is dynamic and, in many ways, unprecedented given the scale, or potential scale, of economic sanctions on Russia, the world’s 11th largest economy. This issue only adds to an already-stressed situation – coming out of a global pandemic. As such, there is no doubt the additional strains coming from higher material costs/limited supply and disrupted trade routes will further extend lead times and strain margins for specific components and products. This will especially affect those directly impacted by the oil and metals markets. Impact currently seems like it will be more severe for European operations due to reliance on Russian oil and proximity to disrupted trade routes.
For supply chain professionals, Levadata recommends taking the following actions:
If you need help navigating the complexities and supply chain risks of disruptions like the Russian-Ukrainian crisis, consider working with us. LevaData's integrated supply management platform features revolutionary, AI-powered solutions like Supply Risk Navigator. Our offerings provide the insights and recommendations needed to mitigate and manage unexpected disruptions at all times. Learn more about our platform here, and then get in touch with us to see what we can do for your enterprise.
Back at the end of Q3 2021, LevaData shared insights as part of our ongoing series highlighting the latest trends and changes regarding semiconductor lead times. Today, we're sharing the latest updates to help your organization manage the disruptions and challenges posed by the industry's current state.
Before we can understand where we are currently, though, we need to look back. So, let's look back at what we saw for semiconductor lead times back in early Q4'2021.
Around this time, we reviewed a basket of 20 different semiconductor types commonly used in the market. Upon review, the data suggested some dips in a few trends, which could have been regarded as early signs of lead time increase momentum starting to weaken.
Fast forward a few months to January 2022, and the data was far less promising. While it looked like lead times could have started leveling off or even begin declining in early Q4, the Omicron surge worldwide led to additional factory and regional shutdowns. This affected the semiconductor backend supply in particular, with a reaction from manufacturers to continue to raise lead times. The fact that lead time increases are continuing to climb is likely due to what we’re calling the continuing supply chain trifecta: decreasing inventory, supply that can’t catch up, and increasing demand.
When reviewing these trends through a holistic lens, one might feel hopeful in suggesting that there could be an arc of stability approaching. Unfortunately, the data as of today does not yet show this leveling-off trend in lead times.
The current outlook continues to suggest shortages for semiconductors into Q3'2022. Most semiconductor manufacturers are sold out on key product lines based on current production levels, with commitments from larger customers out past 52 weeks. Given that dynamic, there is less incentive for them to lower lead times at this time. Although we do expect lead times to level off and slowly decline from here, we’d advise against expecting any dramatic inflections. In fact, given the recent events in Ukraine and the potential impact on the global supply of raw materials used in semiconductor production coming from either Russia or Ukraine, such as neon gas, hexaflurocyclobutene, and palladium, we could expect further pressure on lead time trends remaining at the current elevated levels for some time.
The largest increases are those found in Programmable Logic and MCU/MPUs. The lead times for Integrated Circuits aren’t quite as steep but are still continuing to climb. Even highly commoditized passive components like Resistors and Capacitors cannot escape the pull of the market to extend lead times.
But it’s not all entirely bleak. For example, even though Diodes have had problems, lead times have stabilized over the past several months.
Even still, the overall takeaway seems clear: lead time relief that we had hoped to see in Q4 has been delayed, and it will likely take most of 2022 to moderate. We expect to see continued fluctuations in semiconductor lead times over the next months as supply and demand strive for better balance and as unexpected shocks continue to affect the market (such as the just-mentioned situation in eastern Europe). But the hope is that lead times will begin to achieve that "arc of stability" in the latter part of 2022. The key question is, which levels will they stabilize around?
Lead times are now anywhere from two to four times longer than they were a year and a half ago. Integrated Circuit lead time averages have quadrupled, while Non-Integrated Circuit lead times have doubled. The average? An increase of three times as much.
The above graph, while not a true forecast, offers a compelling perspective on the potential timeline ahead. If lead times decrease the same way they increased, our best-case scenario to return to our previous “normal’ suggests we’ll be waiting for at least a couple of years. With new foundry capacity coming online in later 2022 and 2023, we expect lead times to begin to moderate in 2023, heading towards more historical norms in 2024. However, to some extent, the overall market shifts with increased demand from EVs and the continued drive to digitization may mean lead times may not revert fully back to past norms. It is very possible they may level off at higher averages for some time.
As previously stated, there are two key requirements you must meet to stay ahead of the game and safeguard your supply chain. The first is getting access to and using reliable, up-to-date lead time averages and insights. The second step is to invest in a reputable, always-on risk navigation platform. LevaData's Supply Risk Navigator solution does just that, providing companies with the visibility and recommendations they need to protect their supply chains while maintaining agility. Contact us today to learn more about our AI-powered platform and what we can do to help you manage these and other risks.
It's fair to say that issues like COVID-19 and the semiconductor shortage have been top of mind for many over the last year. But other issues are looming, and they necessitate ample attention. More specifically: how should the procurement industry respond to inflation caused by supply chain challenges and labor shortages?
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index in the United States increased 5.4% in the 12 months leading up to June 2021, reaching its highest level since August 2008. For many current procurement professionals, this is their first encounter with this level of inflation. Additionally, 6.6% of jobs in the United States were unfilled in September 2021, marking the first time we've experienced labor shortages to that degree in over two decades.
While some cost components are likely to return to normal, it is safe to say that we will continue to operate in an inflationary environment for some time. However, procurement professionals who have been through this process before would do well to remember that there is a playbook to follow. Seasoned professionals understand that there is no reason to panic. Instead, buyers must pay close attention to underlying cost factors that may contribute to price inflation.
Given the current state of the supply chain, many suppliers will view this as an opportunity to justify price increases that are, well…unjustified. To manage this, buyers need to implement tactics like ongoing cost drivers analyses, setting should-cost targets, leveraging future markets, and managing commitment horizons. At least for the foreseeable future, the primary objective is to ensure supply while maintaining price stability, which necessitates aggressive bargaining.
Do you have the tools needed to manage the effects of challenges like these and those to come? If not, LevaData has the perfect solution. Our revolutionary, AI-powered integrated supply management platform features one-of-a-kind solutions like Cost Optimizer, with capabilities like eBenchmark that are designed to take the guesswork out of supplier negotiations. Learn more about the power of our solutions here, and then schedule a demo to see what we can do to safeguard your sourcing and procurement strategies.
Though it may be hard to believe, 2022 is officially upon us. As we look to the new year and all the potential it has to offer, supply management and sourcing professionals everywhere are finalizing their corporate resolution lists in the hopes of securing a successful year ahead. The pressure to produce and thrive is on like never before, especially when you consider all the challenges, changes, and uncertainties presented in 2021.
At LevaData, our goal has always been to help organizations transform strategic sourcing into a competitive advantage. We want you to succeed, in every sense of the word, which is why we’re sharing our greatest wishes and hopes for professionals, organizations, and the supply management industry as a whole in 2022.
My wish is that all organizations will capitalize on the rapid investment and adoption of advanced sourcing and procurement analytics. We expect these will increase dramatically over the next few years, and I hope organizations will keep up with this pace of change.
I also hope professionals will take measures to protect themselves from the likely significant increase in potential inventory liabilities we expect to see in the next two years. Based on anticipated demand slowdowns, high safety stock positions, and excess capacity buildout, I believe it's critical to invest in planning and procurement technologies to alleviate these expected inventory risks.
- Rajesh Kalidindi, Founder & CEO
My wish is that enterprises will recognize that attention to risk is now here to stay. Even as disruptions settle down and continuity of supply resumes, sourcing organizations will never again focus myopically on cost alone. My hope is that organizations will come to think of 2021 as an inflection point in raising awareness and fostering change in thinking across supply chain organizations. If we don't learn from the last two years and slip back into our old ways of myopic cost focus, that would be a sad outcome, indeed.
- Adeel Najmi, Chief Product Officer
With respect to the global supply chain and the procurement teams that have worked so tirelessly to keep them afloat, and in some cases, thriving, I wish for three things. Number one: let's not wait for the next black swan event to eliminate breakpoints and evident fractures in our systems and processes. Hope isn't a strategy, yet we've done just that with single-source suppliers and geographic isolation from critical, necessary materials.
Number two: the life of the practitioner in this category is chaos. We should stop that. I wish for them to earn much-deserved attention and exposure. Attention from executive leaders that the work they do is critical, and the breakneck pace of analog and obscenely manual efforts is simply unsustainable—even in the best of times. This is notable for direct material procurement teams. Invest in people by investing in digital transformation that's purposeful.
And, number three: I wish for sustainable solutions that are equal parts legislative policy, technology-driven, and workforce empowerment. Politicians should acknowledge the impact of international tariffs, for example, on the accessibility of parts. Automation doesn't replace work—it enhances quality. Use it. In parallel, educate these teams on practices that can weather downturns and change outcomes by improving minds.
- Scott Morgan, Chief Commercial Officer
In 2022, I wish to continue offering organizations a scalable supply management marketplace platform that allows buyers and sellers to collaborate to add value to their respective companies.
- Akwasi Peprah, SVP of Operations
I wish all executives and organizations could have factual, transparent information readily available, so any plans or strategies they make are based on facts and informed opinions—not emotions or assumptions. This could apply to debates going on in the U.S. government, the fear around COVID, or ensuring visibility of their supply chain data.
I want visibility of consolidated data and facts; insight should be provided based on that first, and then opinions can be applied afterward. Our world currently likes to provide a lot of opinions and choose their own facts to support their view. LevaData can take the "politics" out of data and show the simple facts so that everyone is using the same factual data perspective to make the best decisions for all.
- Brian York, VP, Product Management, Content
My wish is fairly simple and straightforward. The supply chain crunch seems to be continuing, and it may last through 2022. We are facing two new COVID variants; at this time, we don't understand how this risk in the supply chain may take hold or may not affect it at all. Manufacturers have dealt with shortages on key components, as well as higher raw material costs, and they are seeing some significant price increases. Transformation costs continue to change, as well.
My wish is that the variants are mild and do not affect suppliers' abilities to generate commitments to their customers. I also hope supplier staffing gets close to pre-COVID numbers, that transportation supply chain issues ease in the coming months, and that the shipments of goods will again be timely and as expected by Q2 2022.
- Greg Bartek, Senior Director for Global Customer Experience Operations
Of course, these wishes only scratch the surface of what LevaData hopes to achieve and provide in 2022. We believe the future is bright, and we look forward to continuing to offer supply management teams everything they need to ensure a resilient supply of direct materials and improve margins. As we move ahead, our greatest wish is that your organization finds the utmost success and agility in all your commercial endeavors.
After what seems like a never-ending pandemic, some economies have finally emerged from the depths caused by the most impactful economic event in 100 years. While many are well on the road to recovery, others continue to struggle. Along the way, there have been many corporate casualties, but there have also been some remarkable stories of corporate excellence. So, when it comes to supply chain management, specifically with sourcing and procurement, have we seen the survival of the fittest playing out here?
In short, yes. But we need to redefine what we mean by “fittest.”
A recent statistic showed that S&P 500 companies are holding over two trillion dollars in cash. Looking at that traditional “fittest” metric, we would all agree that maximizing liquidity shows good business judgment in times like this. After all, one must be ready for volatility and uncertainty and prepared to quickly take advantage of strategic opportunities.
But what we’ve seen during the pandemic is the survival of the most agile, innovative, and astute companies, especially those operating a highly collaborative supply chain that adjusted at high speed. This was clearly evident, no matter the nature of the adjustments made, whether it was to address new consumer trends emerging from the pandemic or to react to existing customer needs that accelerated as a result of it.
It was also especially evident in companies that pivoted to new products and services that were not previously in their offer set. In all these cases, we saw that those who moved quickly from pandemic triage to customer-centric innovation not only survived but thrived.
But what else do these companies have in common? What are the other ingredients underlying this fitness? There are several of them, most clearly a company culture in which employees are highly engaged and cross-functionally collaborative. This is true no matter how global the company or what format of engagement is employed to connect peers, customers, and suppliers.
You also see companies with a culture of innovation and a workforce that is quite comfortable dealing with change and ambiguity. Perhaps most importantly, you also see leading-edge digital supply chain management capabilities at play. There is no question that companies that are able to leverage digitization for fast collaboration, innovation, and operational effectiveness are the ones that enabled the most agility.
In short, these are the factors that make up the new definition of “fittest.” It’s not just your balance sheet, financial strength, or market strength; it’s how you adapt to a volatile and fast-moving world and what best in class digital tools you employ to do so.
LevaData’s revolutionary platform offers all the resources and insights needed to fast-track your company’s digital transformation and turn sourcing into a competitive advantage. Find out more about our integrated platform to discover what we can do for your enterprise.
Nearly a year and a half ago, day-to-day life was turned on its head as mandatory work-from-home and no-travel policies were implemented to combat the COVID-19 pandemic. In only a number of months, this sudden change sped up the adoption of digital technologies and supplier relationships by several years. The resulting corporate learning curve was steep and challenging for professionals everywhere, and those in supply chain management were no exception; in fact, they were some of the most affected.
During this time, leaning more heavily on existing, but often underutilized, tech solutions like video conferencing software and digital collaboration tools like e-sourcing was pivotal for many organizations to survive. But as we look forward, it’s surprising to see that some enterprises are hoping to go back to the way things were before.
But the truth is, COVID simply accelerated the inevitable adoption of these new technologies, and there is no going back. If you’re finding yourself struggling with this transition, the following guide should help provide some peace of mind—as well as some tips to move forward.
The opposition against remote relationships and interactions is founded on numerous concerns. First, there’s the misconception that remote-only environments foster delays and obstacles in sourcing and procurement activities. The foreign nature of distanced collaboration, bidding, and negotiations has created hold-ups in productivity, as executives work to familiarize themselves with new processes and adopt technologies they are not yet comfortable with.
Some struggle with the power balance of purely remote supplier relationships. The typical communication methods were disrupted by the pandemic, with face-to-face work drastically reduced or abolished. The vast spectrum of collaboration and negotiation options previously available to sourcing teams—the art of the trade if you like—was quickly reduced to a set of structured formal steps.
While the scheduled portion of a face-to-face meeting can quite easily be substituted with an online equivalent, there is a more valid concern around missing out on the time spent with stakeholders outside of the meeting itself (e.g. while walking to and from the venue, or grabbing a coffee afterward). This left many buyers feeling as though they lost their footing and control over the negotiation process.
For those organizations struggling to regulate negotiations in a remote environment, now is the time to lean into the available technologies to make the process more manageable.
Collaboration platforms, for example, are frequently used by supply management teams to find suppliers and acquire their capability and pricing information. In this case, they can engage and negotiate with multiple vendors simultaneously in real-time to obtain a contract and secure products or services.
The technology has a transformative effect, streamlining the process of identifying and negotiating with suppliers, as well as leveling the playing field for vendors bidding on contracts by eliminating human biases from the sourcing equation. However, while a powerful collaboration platform can provide speed and structure to this otherwise complex process, it doesn’t answer the questions of who you should collaborate with or which negotiation levers to utilize to optimize the outcome.
Without this information, although your organization’s process may be fast-tracked, it won’t necessarily be inherently intentional or calculated. To achieve true agility, effectiveness, and success, you need access to both mechanics and insights. For this reason, you should opt for full-suite platforms that also offer reliable strategies and community data to support successful negotiations.
Full-suite collaboration platforms that provide specific recommendations based on real-time data and community insights, together with built-in quote, bid, and award tools, streamline the process in more ways than one. First, they provide the holistic overview needed to handle negotiations with a fully informed perspective and understanding of your starting point compared to the market. They also allow for a virtual meeting ground between you and your suppliers outside scheduled conference or video calls. This ensures collaborative efforts are not limited to scheduled meetings; it also means that those same meetings will be more straightforward, focused, and effective.
There’s no denying that life after COVID will likely contain remnants of “what was.” But as we move forward, the most successful organizations will undoubtedly be those that remain adaptable and open to digital supplier relationships. Embracing the processes and tools available to us now may take some time, but it’s an effort that will be well worth it.
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