Winners and losers emerge from the lingering US supply chain crisis

Splits are emerging in America’s corporate response to a supply chain crisis that a growing number of executives expect to last all year, heralding a flurry of spending on new capacity, better data and a support for the weakest suppliers.

This earnings season, companies have complained of shortages, delays and cost escalations in a quarter in which they rushed to source semiconductors, had to wait for components and suffered the effects of supplier staff shortages.

The reporting season has also revealed how supply pressures are affecting the country’s biggest companies differently, with some expressing belief that they are past the worst while others are still struggling to put the disruptions behind them. .

Apple, which had warned that supply constraints could cost it $6 billion in the three months to December, defied fears on Wall Street that the balance sheet could reach $10 billion and reassured investors on the fact that he expected better conditions this quarter.

Groups such as 3M, Freeport-McMoRan and General Dynamics also praised their ability to overcome challenges in their supply chain, but others reported surprisingly severe deteriorations in the fourth quarter or warned that the disruptions would last for months. future.

GE said shortages of semiconductors, resin, parts and labor had hit its quarterly sales by about 3 percentage points, while Caterpillar admitted the challenges had been greater than expected. .

Mondelez warned that its North American sourcing “headwinds” would strengthen this quarter and keep costs high for most of the year.

The supply chain would be “the fundamental limiter on production” this year, Tesla chief executive Elon Musk told analysts, adding that the chip shortages it faces may not ease until 2023.

Companies such as VF Corp, the clothing group behind The North Face, said they had moved some production to suppliers closer to their biggest markets. Intel, Tesla and Texas Instruments welcomed recent investments in new semiconductor facilities, saying it would give them more control over key components.

Companies with more domestic suppliers and those that had moved before the pandemic to expand their supply chains fared better than others with more complex global logistics, said Tim Ryan, president of PwC US.

A mid-January survey of US executives by PwC found that less than half expected supply chain disruptions to ease by the end of the year, and more 60% planned to raise prices in response.

“Overall, it’s always the bigger companies that are able to pull themselves out of trouble,” added James Zahn, associate editor of The Toy Book, which tracks the toy industry. Even so, he said, some companies planning to exhibit at February’s Toy Fair “were hesitant not to have their samples and prototypes available to show.”

The prolonged impact of Covid-related factory shutdowns, high shipping costs and driver shortages is forcing companies to question long-held beliefs about ‘just-in-time’ production, including the number of suppliers they depend on, the distance critical components have to travel and how little inventory they may hold, executives said.

Mondelez, owner of Cadbury, has warned that North American supply ‘headwinds’ will strengthen this quarter © Simon Dawson/Bloomberg

“The pandemic has caused manufacturers to rethink their supply chains in favor of supply certainty and locating inventory closer to customers,” Ed Elkins, chief marketing officer at rail operator Norfolk Southern, told investors. .

Hamid Moghadam, CEO of Prologis, said customers were telling his property company they would need 20-25% more warehouse space to be able to carry more “safety stock”.

“Engineers have designed supply chains around predictability and when that predictability goes away everything goes to hell in a hand basket,” he told the FT.

“Most companies realize they’ve over-tuned their operation for performance versus resiliency,” echoed Rich Lesser, global president of Boston Consulting Group, who said in an interview that customers are embracing more of a “just in case” attitude.

Holding more inventory was only part of the answer, he said, pointing to companies investing in better data to track supply chains and prepare for future dislocations.

Executives cited a wide range of supply issues, from difficulty sourcing specialty components from Danaher to a shortage of welders for the castings Raytheon Technologies needed. Responses were equally diverse, from Sherwin Williams, the paint company, buying a resin supplier to VF Corp chartering “full-size airliners” to secure supplies.

Some have had to offer financial support to smaller suppliers struggling to weather the storm, with Lockheed Martin accelerating more than $2.2 billion in supplier payments last quarter as a ‘prudent risk mitigation strategy’ .

Ambrose Conroy, CEO of a supply chain consultancy called Seraph, said concerns about the financial fragility of some suppliers were widespread.

“I have a few automotive customers who are in financial difficulty: in the early stages, they would have gone bankrupt, but . . . the customers are giving them cash injections,” he said.

The prospect of a series of interest rate hikes this year has heightened those worries, observed James Gellert, CEO of RapidRatings, which tracks the financial health of companies.

“When volatility kicks in and we start to have more questions about credit, it will affect the lower end of the credit spectrum and private companies more than large public companies,” he noted.

Greg Hayes, president and CEO of Raytheon, underlined how critical small producers can be for large groups with complex supply chains. Of the defense contractor’s 13,000 suppliers, “less than 100. . . really concern us,” he told investors, “but it only takes one to cause us to miss a delivery.

Additional reporting by Matthew Rocco in New York and Steff Chavez in Chicago

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