Inflation and disruption are increasing again. Wholesale inflation as measured by the producer price index increased by .5% since last month which was more than expected. Core inflation (excluding food and energy) went up by .3% which was also more than expected.

These figures coincide with what we are seeing across a broad spectrum of clients. Raw materials, components, and other inputs continue to increase and are challenging to cover with increased pricing. Thus, margins decline, additional improvements and cost reductions are pursued, and clients prioritize customers and/or increase prices to cover costs.

Disruption is also increasing as the UAW strike persists, the Israel war started, and the China risk continues to escalate. Unfortunately, potential strikes and labor union negotiations / disputes seem to be contagious and are exploding across the supply chain. At the minimum, it causes supply chain partners to make preemptive moves and creates disruptions along the supply chain. Global risk continues to expand and appears contagious as well.

Inflation: Pivoting From Reactive to Proactive

If clients are not proactive in addressing rising input costs, margins decline. Unfortunately, during the height of the pandemic, they were racing to keep up to simply survive and didn’t always keep with inflationary pressures quickly enough. Your options become limited as time goes by. For example, a potential consumer products manufacturing client had significant price increases on purchased components. Fast-forward a year later, and the executive team wanted to address these issues. However, by then, customers were less accepting of price increases and too much time had gone by that cost reduction efforts were lagging.

We were brought on to provide business consulting assistance. Although time has passed, we helped them put together a customer and profitability model so that they could decide which products to discontinue, which customers to request price increases from (and how much), which customers and products to focus on and where to focus operational improvement efforts. We provided a roadmap for improvement; however, the benefits were muted from what could have been achieved if proactive earlier.

On the other hand, a building products manufacturing client also experienced rapid and frequent price increases with their raw materials. They quickly pivoted and pursued two paths forward. First, they assessed the impact on product groupings and key customers and passed on price increases for what seemed fair. As most clients did, they absorbed some of the price increases while passing on what made sense. We also proactively addressed service policies with the Sales and Operations teams. And they pursued backup suppliers, material changes, waste/ scrap reduction activities, and several other operational improvement strategies to maintain and improve margins. For additional ideas strategies for proactively navigating inflationary pressures, read our Brushware article “Case Study: Strategies to Successfully Navigate Inflation“.

Disruption: Pivoting From Reactive to Proactive

Similarly, if clients are not proactive in addressing disruption, it can lead to lost and unhappy customers and decreased profitability. Depending on each client’s end-to-end supply chain, the situation is different. For example, if the client is supplied from Russia or Ukraine, disruptions have already occurred, and there doesn’t appear to be an end in sight. If transported through the Suez Canal, they were likely disrupted by the stuck ship. Certainly, during the pandemic, if supplied by Asia, they experienced delays as ships mounted outside the L.A. and Long Beach harbors. Recently, if they went through the Panama Canal, they experienced delays and/or increased costs. If related to one of the potential striking entities, they could have experienced preemptive disruption, and if they related to striking entities, they will experience delays. And these are only the ones that popped to mind. We cannot wrap up a paragraph on risk without mentioning the heightened risk of producing in China.

Proactive clients were far more successful during the pandemic and post pandemic as sales pipelines were robust for those that are proactive and ready to pivot. For example, an industrial manufacturer was quickly able to move crews that were cross-trained to the most critical jobs. They also offloaded a portion of their volume to regional and local suppliers that could start up rapidly to supplement their volume. They also pursued creative strategies to hire additional resources and retain talent. They purchased ahead for high risk items and pursued backup sources of supply. Additionally, they also rolled out a SIOP (Sales Inventory Operations Planning) process so that they could get ahead of their demand plan and pursue proactive strategies to ensure Operations could execute the plan while continuing to focus on operational performance and profitability. For additional ideas in pivoting from reactive to proactive with disruption, read our article “SIOP / S&OP: Creating Predictability & EBITDA Growth“.

The Bottom Line

The business pundits do not see an end for inflation anytime soon. As interest rates rise, the rate of inflation has declined; however, it remains sticky. The same story holds true with disruptions. Although supply chains have leveled out, supply chain risk remains at an all-time high and disruptions continue to occur. Successful clients are pivoting from reactive to proactive to satisfy customers, establish priorities and grow profitably.

If you are interested in reading more on this topic:
How Smart Manufacturers are Navigating Interest Rate Hikes

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Special Report: How Companies Should Reshape to Succeed in 2023 & Take Advantage of Huge Opportunities Coming Down the Pike

The world remains in chaos and businesses are conflicted about what to do. The next year will separate the market leaders from the rest. We talked with top notch trusted advisors about what their most successful manufacturing, supply chain and technology clients are doing to not only succeed in 2023 but to prepare to take advantage of the huge opportunities on the horizon. Twenty-seven trusted advisor experts discuss what companies need to do to reshape in 2023 to thrive for decades to come.

Insights from 27 Trusted Advisors

There is much going on in the world from navigating stubborn inflation to fears of recession to geo-political risk. In addition to my foreword (executive summary), we cover a wide variety of key topics impacting manufacturers, distributors, retail, and healthcare including:

• Commercial relocation
• Cyber
• Geopolitical & natural resources risk
• Human capital – Planning & scheduling, labor law compliance, talent
• Insurance – Commercial
• Logistics (airports, cargo, distribution, global supply chain, ports)
• Marketing – Artificial intelligence & communication
• Manufacturing – Nearshoring (Central America, Latin America, Mexico, etc.)
• Manufacturing – Reshoring
• Manufacturing – Offshoring (India)
• Manufacturing – Talent
• Supply Chain – Software, artificial intelligence, sourcing & architecture, mitigating risk, process & people
• Technology – Artificial intelligence, infrastructure, ERP, the customer experience

Link to Download the Report

We are pleased to offer a complimentary download to our newsletter subscribers –

Please contact us with feedback, stories, issues, and opportunities on what you’re seeing, topics of interest, and what you’re doing to succeed and differentiate yourself from the crowd. And, please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Learn more about these topics in our blog and download your complimentary copy of our eBooks including our new release, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Success.

The post The Road Ahead: Business, Supply Chain & The World Order is Available appeared first on LMA-Consulting Group, a supply chain consulting firm.

Originally posted in Adhesives and Sealants Industry in May of 2023

As the healthcare industry supply chain faces more challenges, supporting industries must be proactive, resilient, and innovative.

Although the visible bottlenecks in the healthcare supply chains are getting calmer, volatility will remain high. From the impacts of increasing interest rates and bank failures to labor and material shortages to global conflicts, the risks in healthcare supply chain will skyrocket. This situation will create as many opportunities as challenges, and so the proactive, resilient, and innovative companies will thrive while the rest diminish. The key will be deliberately making that choice and ensuring your end-to-end supply chain partners are on that same trajectory.

Current Status of Healthcare Supply Chains

Since the supply chain is an interlinked series of suppliers, manufacturers, and logistics partners, the bottleneck moves from one link to the next as demand and supply are out of alignment. During the pandemic, the visible signs were abundant with ports stacked up at the ports. Fast-forward to post pandemic and much of China was locked down for almost a year, the Russia-Ukraine region has been in war and the Great Resignation has grown across the world (reducing the number of people in the workforce to lower than pre-pandemic levels), severely limiting supply while demand raged as people started to spend money, catch up on medical appointments and live life again.

Thus, critical shortages and extended lead times remain while there is a glut of inventory in the “wrong” products in the “wrong” place at the “wrong” time, leading to continued disruption, inflation caused by limited supply, and recessionary signals caused by the cost of capital and the oversupply of “wrong” products throughout the supply chain. To make matters more challenging, global tensions are on the rise with China and several other countries that supply essential medical devices, key materials, and active pharmaceutical ingredients, as well as other critical commodities and components.

Inflation, Workforce Issues & Labor Shortages Adding to the Volatility

Inflation, workforce issues and labor shortages are further disrupting healthcare supply chains. The country faces a shortage of up to 124,000 physicians by 2034, including 48,000 primary care physicians, according to the American Medical Colleges. Of immediate significance, according to The American Hospital Association, 136 rural hospitals closed from 2010 to 2021 alone. And, according to the Chief Healthcare Executive, the Texas Hospital Association has warned that 1 in 10 hospitals in that state is at risk of closure, with nearly half of that state’s hospitals projecting negative operating margins. As these medical professional shortages persist and closures occur, patients still require attention. Thus, healthcare is on the move, and the supply chains will have to catch up. Thus, more of the “wrong” items will be in the “wrong” places at the “wrong” time., thereby creating additional disruption, inflation to move and/or transfer them (from one owner to the next), and inventory stockpiles in the “wrong” place.

The Successful Path forward

There will be more opportunity than ever before for proactive, resilient, and innovative companies to gain market share during these volatile times. The successful companies will take control. Starting by targeting their ideal customers, they will focus limited resources on what provides the most value to these key customers, including providing value-add services such as vendor managed inventory so that their customers have the “right” products in the “right” place at the “right” time with minimal resources and risk.

They will go further into their supply chain to assess risk and mitigate shortages of critical components and supplies due to resolvable issues such as delays in transportation and material and labor issues at a third-tier supplier. Reliability will be prioritized over cost, and additional suppliers will be qualified even though the cost and time required is high. Backup suppliers will be scalable to mitigate issues such as those that occurred in the baby formula market. And taking control of essential healthcare supply chains will become a priority as reshoring and nearshoring production gains momentum. For example, Costa Rica and Mexico are building strong medical device manufacturing clusters to support healthcare supply chains. And the successful will deploy technology to support the sustainability and scalability of these initiatives.

It is no longer sufficient to leave manufacturing and supply chain reliability to chance. The proactive, resilient, and innovative will thrive and gain the opportunity to grab market share from those remaining on the roller coaster of volatility. Think ahead, be proactive and be willing to invest in supply chains of the future to support your ideal customers and be uniquely positioned to grow and thrive.

Lisa is founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth as an e-book that can be found at https://www.lma-consultinggroup.com/siop-book/.

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The “Solution” to Successfully Dealing with Shortages, Delays & Inflation

Supply Chains: There is No “Return to Normal”

There is no “return to normal”. Non-stop disruptions are the norm. Proactive clients are still struggling to hire the “right” talent in the “right” place at the “right” time. Material lead times are extended and shortages remain yet, in other situations, there is surplus supply. Unfortunately, the bullwhip effect ensured that companies went from scarcity to excess and experienced a whip saw effect.

There are countless examples. At the airport on the flight home from a client, the restaurant was out of several items. While at the client, we held several meetings about offload suppliers that were short on capacity for a variety of reasons related to labor, materials, changing requirements, and capabilities. In talking with another client on a Teams call, there were shortages of minor yet required items to keep customers orders flowing. In the interim, one of the parts for my car will take an extra week, delaying the entire job. And these were just in one week.

Inflation Is Real

In listening to the news, there is a lot of talk about how inflation is cooling. I guess it is all relative. My recent flights were less expensive than they were a year ago, but still higher than pre-pandemic. My car’s engine and surrounding parts are FAR higher than they were pre-pandemic. House maintenance and upgrades are steep. Building materials are cooling vs skyrocketing prices during the pandemic, yet they are MUCH higher than they were pre-pandemic. A few 10-20% price increases take a bite out of affordability! Even if the current prices are stagnant or 1-3% up, prices are a minimum of 30-50% higher than pre-pandemic.

When it comes to food items, 30-50% would be welcome. Eggs increased 70% in the last year. The media doesn’t even horrify us with the statistics in comparison to pre-pandemic. Milk is up over 40% since pre-pandemic. These prices will have a direct impact on hospitality, restaurants, etc.

Manufacturing clients are experiencing these same cost increases for materials, components, and outsourced products. It depends on the type of manufacturer; however, 100% of clients are experiencing these issues. The only question is whether the price increases have leveled off or continue at aggressive rate increases. For example, multiple clients had substantial material price increases that couldn’t be completely offset in customer price increases, thereby reducing margins. In one case, margins went down by 5-8%. That is not pocket change!

How Can SIOP / S&OP Help?

SIOP (Sales Inventory Operations Planning), also known as S&OP, is a process that starts by enabling clarity and predictability with the sales forecast (demand plan) and then determines the best way to fulfill that sales plan from an operations, supply chain, warehousing/ distribution, and transportation perspective. So what does that really mean?

How Does This Relate to Resolving Shortages & Delays?

In our first example, SIOP has proven effective in helping clients over the shortage and extended lead time scenario. Of course, SIOP is not a magical solution that solves “world peace”; however, as you improve the predictability of your revenue plan (sales forecast), the supply plan can be stabilized. For example, when we started working with a life sciences manufacturer, spikes in sales drove variability and volatility in manufacturing. This was especially challenging with the aggressive growth expected. Not only did they have issues in determining the appropriate number of people and skills required for specific timeframes, but they also had continual issues with long lead-time materials and equipment needs.

Once we built a collaborative forecast based on historical sales and growth rates, incorporated feedback from the Sales team, Product Managers, R&D, and customers (inventory agreements, etc.), we stabilized the demand plan. It was not perfect on an item by item or customer by customer basis; however, when looking at meaningful groups (such as a product line that required the same machinery, skills or materials), it was directionally correct, thereby stabilizing the supply plans.

From the opposite point-of-view, we had to get a better view of capacity in the base unit of measure so that we would know how many people are required for which work center. After converting the custom units of measure to a base unit of measure, we were able to visualize the required capacity. Similarly, we dug into available capacity. One would think that would be easy, but it is rarely easy. There are always many exceptions and nuances when it comes to skills, cross-training/ shared resource complications, etc.

As we gained clarity of capacity by work center and related to specific groups of products, we could see our gaps to the supply plan and address accordingly (hire, transfer, reallocate etc.). Now the supply plan was stabilized, which enabled stability in the demand plan. Similar to a teeter totter, it is never one-sided. Demand creates challenges for supply and vice-versa. SIOP helps to align the two sides on the same plan.

Once the two are aligned, shortages and delays are minimized. It will also help with supplier related shortages and delays because you can give your suppliers better notice and clarity about what is needed to support your sales plan. If they have issues, you can proactively address and build into your demand and supply plans. For example, you might be able to use a like-material or contact a backup supplier. On the other hand, you could also adjust your supply plans to account for issues or proactively prioritize customer orders, price changes, and take other actions to address until supply is rectified. The bottom line is that SIOP can create predictability in your revenue plan (and the fulfillment of that revenue plan).

How Does This Relate to Dealing with Inflation?

In our second example, SIOP can also help clients proactively address inflationary pressures. By better aligning demand and supply, you can provide forecasts to material and component suppliers. Many clients use those forecasts and better view into changing demand patterns to set up supplier agreements which can help offset inflationary price pressures. For example, an aerospace and defense manufacturer improved margins by 5% largely through material price reductions with supplier agreements after stabilizing demand.

A key part of SIOP is also to analyze customer and product profitability. This information will provide key insights into how to manage inflationary pressures. Every client has passed on price increases to customers. Some were quickly on top of changing conditions and were able to pass on price increases immediately. Others responded quickly although the price increases didn’t take effect immediately due to lead times.

Additional clients absorbed a portion of the price increases but not the full price increase depending on market conditions, margin impacts or other factors. In addition to price increases, clients re-evaluated low profitability products, deprioritized unprofitable customers (extended lead times or increased prices), added service level tiers, prioritized customers and/or suppliers to partner with to redesign, repackage, and streamline, and utilized other strategies to proactively address inflationary pressures. SIOP will support margins, profitability, and EBITDA growth.

Path Forward

SIOP can be an important process in aligning people (within your organization and with your supply chain partners) and processes (demand and supply) to address several issues such as supply chain disruptions and inflationary pressures. It also supports capital spending requirements, cash flow management, and several supporting items. The bottom line is to take control of your manufacturing and supply chain to support growth and profitability.

Refer to our SIOP webpage for more information, our blog for hundreds of articles and learn more about SIOP and what’s important for a successful implementation in our new release eBook, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. If you are interested in talking about how to reshape your supply chain, get in front of it with a SIOP process, and successfully navigate these waters, contact us.

Did you like this article?  Continue reading on this topic:
Getting Ahead of Inflationary and Deflationary Pressures Using S&OP

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Listen to find out how some of the top supply chain consultants around the world are working with their clients to help them deal with rising inflation and interest rates.

In this episode of Interlinks, I am joined again by my supply chain consultant colleagues from the Supply Chain Special Interest Group of the Society for the Advancement of Consulting, to talk to them about how they’re helping clients at this time to cope with inflation and higher interest rates, that are affecting companies operating in Europe, America, and Australia alike.

My guests are:

• David Ogilvie, founder and principal consultant at David Ogilvie Associates, in Brisbane, Queensland, Australia.
• Diane Garcia, President of Lorraine Consulting based in Phoenix Arizona and
• Lisa Anderson, President of LMA Consulting, joining us from the Los Angeles metro area in California.

Click here to listen.

Originally published on Interlinks, February 16, 2023.

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In the last few weeks, I’ve participated in three different economic events, talked with trusted advisors and seen what clients are experiencing. From banks to economists to executives, differing views emerge. But, what is the bottom line? According to the pundits:

• Best case: economic stagnation
• Worst case: recession with continued inflation

Here are a few noteworthy stats:

• Money supply expansion: it has expanded at a breakneck pace with stimulus etc. ($5 trillion to $20 trillion) – not pocket change
• Inflation remains high: Although inflation is coming down, it is still quite high vs. target inflation. Projections range from 3.5% to 4.5% at the end of 2023. Bringing it down the last few percentage points is likely to be FAR more challenging than the first 5 or 6 points.
• GDP growth: flat at best; recession is likely to some degree
• Workforce deficit: There are 1 million less people in the workforce now vs. pre-COVID. Companies still need key talent.
• Fed: Interest rates will continue to rise. The only question is the rate and pace. The oddity is that the goal is to increase unemployment to cool the economy yet there is a shortage of workers vs. pre-COVID. What unintended consequences might arise?
• Treasury yield curve upside down: Short term rates high (driven by the Fed) way above long-term rates (driven by the market).
• CEO survey: According to a Conference Board survey, a recession is the biggest worry.
• Business equipment investing: Down by 3.7% in the 4th quarter.
• Supply chain remains out of alignment: The bubble has moved from shortages to inventory gluts and the bottleneck continues to move. The implicit goal of the economic levers being pulled is to decrease demand instead of increase supply, but what will be the unintended consequences? Shortages remain in several sectors such as baby formula, services (just try to rent a car in Kansas City), baby Tylenol and more.

What Will This Mean?

We are in a period of VUCA – volatility, uncertainty, complexity, and ambiguity. Thus,

1. Key challenges will remain: Navigating inflation, recession, global unrest, and more will continue.
2. Yet more opportunities will arise than ever before: The smart companies will have more opportunities to grow and take market share from the weak and reactive that will set the segment leaders for decades to come.

For example, during the recession of 2009, clients that panicked and slashed inventories without looking at the big picture (and right-sizing inventory to preserve cash yet be able to take advantage of key opportunities) suffered badly with service as they realized they cut the wrong items in the wrong place at the wrong time. Service tanked and sales suffered. On the other hand, those who thought forward and invested in a key resource when everyone was laying off or increased inventory of a strategic material so that they could take advantage of an opportunity when a competitor ran out leaped forward as the competition treaded water. Use a touch of common sense, and you’ll thrive.

Listen to our recent Supply Chain Chats about what to expect, how it relates to what’s going on with Ukraine, China, rail strikes, and more, and most importantly, what you should do about it.

Where Should We Focus?

Take quick action and consider the following priorities:

• Margin: every client has a multitude of opportunities to increase margin from pricing to cost reduction to automation to redesign, opportunities abound.
• Inventory: cash is king. Think ahead about risk and demand, right-size your inventory and capacity with planning best practices, and align with a SIOP process. In essence, proactively balance demand and supply instead of letting demand spikes/ troughs or supply disruptions or imbalances drive you.
• Ability to scale quickly: To take advantage of opportunities yet navigate tough times, build flexibility and scalability into your capabilities.
• Technology: Utilize the “right” technology to provide a superior customer service, improve margins, accelerate cash flow and build sustainability, repeatability, and efficiency into your processes. Why not fully leverage already existing assets to your advantage?
• Talent: Do you have the talent to “see” and take advantage of the opportunities? One of our key clients hired a key engineer at the height of the recession, and he fueled growth for the next decade with product designs and much more. Another client invested wisely when the competition battened down the hatches. They soared as opportunities emerged.
• Remember the fundamentals: The best prioritize excellence of fundamentals and results follow. Inventory management is one of these priorities.
• Think big & be bold: Now is the time to take the leap to the future while the competition cowers in the corner.

Please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Several of these types of topics will be included in our forthcoming book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

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Lisa Anderson was quoted in the Sports Business Journal about reshoring and the investment in domestic manufacturing and the importance to the future.

“Daktronics’ substantial investment in expanding its manufacturing capabilities at factories in South Dakota and Minnesota, and its snapping up of available inventory at a higher rate than normal to restore some predictability to order fulfillment, depleted the company’s liquidity during the past year-plus from $61.6 million to now $7.7 million heading into the third quarter of the 2023 fiscal year. Following generally accepted U.S. accounting standards (GAAP), Daktronics, which had close to $611 million in revenue in FY22, was required to note in its filing that its financial state raises “substantial doubt about our ability to continue as a going concern.” 

Portions of the global supply chain are back in relative order, but that’s not the case for semiconductors or integrated circuits, which are crucial to Daktronics’ business. Most of those products and materials pass through Asia, if they don’t originate there, on their way to the U.S., and the COVID situation in China has sustained supply well beyond the time frame many experts projected. Daktronics’ own Shanghai factory has been closed regularly during the past two years. About 15% of Daktronics’ market is outside of the U.S.; between 10% and 15% of its production comes from factories in Shanghai and another in Ireland. 

Hiring difficulties, shipping inconsistencies and inflation have contributed further to the formidable slew of challenges.”

To read the full story, click here.

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