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Supply Chain Improvements: Shaping the Industrial Sector

July 30, 2024

Note: We reveal investment insights through the quotes of top business leaders.

Key Takeaways

  • Companies are actively addressing supply chain challenges to meet customer demand and manage inventory, but issues persist, impacting working capital and inventory levels.
  • Enhancing production efficiency through cost reduction, production innovation, and software improvements is crucial for improving margins and product quality.
  • Technological advancements, such as IBM's GenAI and scalable manufacturing processes, are driving productivity and enhancing supply chain efficiency.
  • Companies are improving risk management by actively managing suppliers, qualifying additional sources, and strengthening processes for risk identification and claim management.
  • Supplier collaboration through long-term agreements and global partnerships is essential for enhancing supply chain resilience and ensuring steady, quality supply.

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Current Supply Chain Challenges

Industrial sector companies are actively addressing supply chain challenges to meet customer demand, manage inventory, and optimize returns. Despite efforts to enhance supply chain resiliency, issues persist, impacting working capital and inventory levels, particularly in aerospace and commercial equipment sectors.

"We continue to work to minimize supply chain challenges that may impact our ability to meet customer demand." --- (CAT, sec filing, 2024/Q1)

"While we still expect to reduce working capital for the year, the improvement is expected to be lower given the impact of supply chain challenges to inventory. Overall, free cash flow is up approximately $700 million year-over-year at the midpoint." --- (GE, earning call, 2024/Q2)

"ahead for Aerospace Technologies, we expect momentum from the first half to carry over into the second half as robust orders and increases in factory output will support growth. In commercial original equipment, we anticipate the second quarter to be our low point of the year for growth and some related supply chain challenges abate." --- (HON, earning call, 2024/Q2)

"Coupled with our dual sourcing strategies, we've been able to enhance supply chain resiliency in tandem with cost savings, which has been crucial to optimizing returns amidst lower demand." --- (DE, earning call, 2024/Q2)

"So that's the one that's – just given the supply chain challenges, given the demand dynamics with the air framers, so we continue to watch that inventory level and can we drive the same level of inventory reduction that we had initially planned that we've started the year." --- (GE, earning call, 2024/Q1)

Enhancing Production Efficiency

Tesla, GM, Honeywell, Boeing, and Ford are all enhancing production efficiency through cost reduction, production innovation, software improvements, and stabilizing production systems. These efforts are aimed at improving margins, capital efficiency, and product quality, ultimately positioning them competitively in the industrial sector.

"We will continue to adjust accordingly to such developments, and we believe our ongoing cost reduction, including improved production innovation and efficiency at our newest factories and lower logistics costs, and focus on operating leverage will continue to benefit us in relation to our competitors, while our new products will help enable future growth." --- (TSLA, sec filing, 2024/Q2)

"Around the world, we are very focused on growth and profitability, while improving capital efficiency, lowering cost and building the best products we can for our customers around the world. All of our product programs are benefiting from the end to end improvements we've made in software, including the increased rigor we have instilled in our quality and validation processes." --- (GM, event transcript, 2024/06/04)

"In order to achieve this, we are enhancing how we think about our new product innovation, monetizing our vast installed base, accelerating software offerings and improving our leadership position in high-growth regions. As an early read on these efforts, our self help actions and aftermarket services are demonstrating favorable proof points, double-digit growth in the second quarter and accretive growth even when excluding aerospace." --- (HON, earning call, 2024/Q2)

"And while I understand that frustration, the most important thing we can do for our customers and the supply chain in the industry is to focus on the actions that are underway as we speak so that we could stabilize this production system, improve quality and get more predictable." --- (BA, conference, 2024/05/23)

"It's to improve our margins, to be more capital efficient and to be less cyclical or more robust as an industry." --- (F, conference, 2024/06/11)

Role of Technological Advancements

Technological advancements, such as IBM's GenAI and scalable manufacturing processes, and Google's focus on machine efficiencies and technical infrastructure, are driving productivity, improving delivery, and enhancing supply chain efficiency. These innovations are pivotal in transforming the industrial sector.

"Second, we are developing new ways of working, driving productivity and improving delivery, all with our Consulting Advantage platform. In summary, GenAI is acting as a catalyst for companies to grow revenues, cut costs and change the ways they work, creating a significant opportunity for us." --- (IBM, earning call, 2024/Q2)

"In terms of the challenges, I think making sure, I think we are constantly, I think it's been a mindset shift which we've been driving across the company to make sure that we are embracing this opportunity, but being very efficient in how we are approaching it, making sure we are redirecting our people to the highest priorities across the company, building on our 20 years of experience and driving machine efficiencies year-on-year so that we can put our dollars to work as efficiently as possible." --- (GOOG, earning call, 2024/Q1)

"In addition to the advancement of packaging capabilities, IBM will be conducting R&D to develop methods for scalable manufacturing and other advanced assembly processes to support the packaging of different chip technologies, to further Canada's role in the North American semiconductor supply chain and expand and anchor Canada's capabilities in advanced packaging." --- (IBM, press release, 2024/04/26)

"So kind of the gift that keeps giving. And then more broadly, all of the work streams that we've talked to you about before, we continue to remain focused on.A big one, very important one, is all of the efficiency efforts, the work streams around technical infrastructure and improving efficiency there." --- (GOOG, earning call, 2024/Q2)

"Now, dedicated access to leading quantum hardware and software, powerful supercomputing resources, and educational and technical support from IBM will help educate and shape the technology workforce as students develop skills across quantum and classical computing paradigms – critical to accelerating New York's continued growth as a leader in next-generation computing." --- (IBM, press release, 2024/04/05)

Improving Risk Management

Companies are enhancing risk management in their supply chains by actively managing suppliers, qualifying additional sources, and advanced purchasing (PFE). They are also strengthening processes for risk identification and claim management (MRK), and managing risks related to third-party relationships and supply chain practices (PG).

"We continue to monitor industry demand for certain components and raw materials and implement mitigation strategies in an effort to reduce any potential risk or impact to product supply, including active supplier management, qualification of additional suppliers and advanced purchasing to the extent possible." --- (PFE, sec filing, 2024/Q1)

"We strengthen existing processes for risk identification and claim management." --- (MRK, event transcript, 2024/04/26)

"Key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy, packaging content, supply chain practices or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers." --- (PG, sec filing, 2024/Q3)

Promoting Sustainability

Companies like Tesla, CP Foods, Nike, and Starbucks are actively promoting sustainability through innovations, regulatory compliance, waste reduction, and sustainable growth strategies, aiming to create a fully sustainable global economy.

"The goal is to give people hope that there is a path to a fully sustainable global economy, that we are on that path, that we are accelerating that path, and that so long as we don't get complacent about it, it will happen." --- (TSLA, event transcript, 2024/06/13)

""Using RISE with SAP and our sustainability solutions, CP Foods is getting ahead of forthcoming emissions regulation and future-proofing its business by using data to make more sustainable decisions."" --- (AAPL, press release, 2024/05/16)

"And so, we view our job to be able to deliver season in, season out, strong innovations, also the ability to scale those innovations over time, both to delight consumers and also bring us to healthy and sustainable growth." --- (NKE, earning call, 2024/Q4)

"Specifically in our U.S. stores, we're focused on creating a more stable environment for partners through investments in equipment innovation, process improvements, staffing, scheduling and waste reduction, all things our partners value and prioritize, creating a more satisfying work environment in our stores while derisking our business." --- (SBUX, earning call, 2024/Q2)

"That result is the epitome of a sustainable economy. While sustainability is our mission, we also have the goal of safety." --- (TSLA, event transcript, 2024/06/13)

Supplier Collaboration

Companies like Walmart, Amazon, Home Depot, and Apple emphasize supplier collaboration through long-term agreements, shared tools, and global partnerships. These efforts enhance supply chain resilience, reduce risks, and ensure steady, quality supply, demonstrating the critical role of supplier collaboration in industrial sector improvements.

"And so we're really proud of our position from a supply chain standpoint. We worked diligently to provide resilience across the food supply chain over the past couple of years.I'm working on a number of initiatives, Doug, things like long term agreements with our suppliers to make sure that they can make the investments they need to secure future food supply, working diligently in things like sustainability across the key stakeholder groups to equip farmers to make sure that our food supply is steady for years to come." --- (WMT, event transcript, 2024/06/05)

"The Company's continued role in the Amazon Partner Network helps customers in their efforts to reduce risk, increase collaboration and decrease hardware and system maintenance costs." --- (AMZN, press release, 2024/06/26)

"Our merchants, store and MET teams, supplier partners and supply chain teams are always ready to serve in any environment. They did an outstanding job delivering" --- (HD, earning call, 2024/Q1)

"In other cases, we share them with our suppliers and partners on the manufacturing side, we purchased some of the tools and manufacturing equipment." --- (AAPL, earning call, 2024/Q2)

"Thoughtfully curated by Walmart's experienced product development team that collaborated with suppliers across the globe to source quality, trend-forward ingredients and flavors, bettergoods brings exciting culinary concepts directly to customers at Walmart's Every Day Low Prices." --- (WMT, press release, 2024/04/30)

Future trends in the industrial sector will be shaped by macroeconomic factors such as inflation, interest rates, and geopolitical conditions, impacting supply chain volatility and labor expenses. Companies like Amazon and Tesla anticipate increased capital expenditures and operational challenges, while others, like CP Foods, are investing in technology to drive growth and sustainability.

"Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce, cloud services and new and emerging technologies, and the various factors detailed in our filings with the SEC." --- (AMZN, earning call, 2024/Q1)

"At the same time, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability." --- (TSLA, sec filing, 2024/Q1)

"Looking to drive further growth and competitive advantage in its sector, and to ensure the sustainability of its products for the future, Charoen Pokphand Foods (CP Foods) recently selected SAP SE (NYSE:SAP) to provide multiple solutions." --- (GOOG, press release, 2024/05/16)

"If you take a look at it, everyone is trying to figure out dealing with higher interest rates, inflation, demographic shifts, supply chain dislocations, geopolitical conflict uncertainty or many challenges facing the world today and enterprises today." --- (IBM, conference, 2024/05/20)

"Overview Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify." --- (AMZN, sec filing, 2024/Q1)

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