- This topic is empty.
-
Posts
-
Ongoing supply-chain issues are forcing finance teams to rethink how they are managing customer demand, from increasing inventory to cutting the number of orders taken, or—as a last resort—canceling those that cannot be filled.
Supply of key commodities and components, including computer chips, has been strained by pandemic-related restrictions and pent-up demand since early 2020. More than two years later, companies continue to battle with shipping delays for much needed goods as ports in China and elsewhere remain clogged up, trucking firms struggle to find drivers and demand stays high.
About 11% of shipments from Asia arrived on time in North America this month, down from 18% in May 2021 and 59% for the same month in 2020, according to data from eeSea, a supply-chain advisory firm. The figure is up from 9% of shipments that were landed on time in April, eeSea said.
Businesses including film and photographic supplies manufacturer Eastman Kodak Co. , beauty products maker Olaplex Holdings Inc., chemical company Chemours Co. and sports apparel seller Under Armour Inc. are among those that have tweaked their supply-chain strategies in response to the challenges.
Executives said they don’t anticipate much relief in the foreseeable future. “We don’t expect to see a change in the availability or cost of supply,” said David Bullwinkle, the chief financial officer of Rochester, N.Y.-based Kodak. “We expect that will continue for the remainder of the year.”
Still, Kodak has largely been able to keep up with orders despite across-the-board cost increases for materials, labor and logistics, in part because the company decided to carry more inventory on its balance sheet, Mr. Bullwinkle said.
The company in the middle of 2021 started to see supply-chain issues in the electronics industry and began asking suppliers for more product, Mr. Bullwinkle said. Compounding the problem were price increases for certain materials that Kodak needs, such as aluminum, which is used for printing plates, its biggest revenue generator.
A metric ton of aluminum cost about $1,000 more in late February than in May 2021, resulting in a roughly $100 million hit to the company’s balance sheet, he said. The price per metric ton topped $3,400 by Feb. 28, compared with just over $2,400 on May 28, 2021, according to data provider FactSet Inc.
Kodak now holds around six months of inventory, compared with three months before the supply-chain challenges began, Mr. Bullwinkle said. During the first quarter, the company reported $247 million in net inventory, up more than 12% from the prior-year period. Kodak’s revenue during that same period was $290 million, which is up over 9% compared with the prior-year period.
Olaplex also brought more inventory in-house, CFO Eric Tiziani said. The company in 2021 decided to invest in growing its inventory, which has limited some of the negative effects associated with longer lead times for products sourced from third-party manufacturers in the U.S. and Europe, he said.
The Santa Barbara, Calif.-based company went from having four to five months of supply in the first three months of 2021 to holding six to seven months of inventory by the end of last year’s third quarter. Inventory levels will remain elevated until supply-chain conditions show signs of improvement, according to Mr. Tiziani.
Olaplex reported a 36% increase in net income to roughly $62 million in the first quarter of the year, compared with a year ago. Net sales in the first quarter increased nearly 58% to $186 million, when compared with the same period in 2021.
Other companies, including energy drinks maker Monster Beverage Corp. , microcontroller chip maker Microchip Technology Inc. and medical equipment company Steris PLC, also said they are carrying higher levels of inventory.
Still, other companies are trimming order counts. Wilmington, Del.-based Chemours, for one, cut down on the number of orders it takes. “In certain cases, here and there, we had to adjust,” said CFO Sameer Ralhan. This is particularly the case in the titanium dioxide part of the business, which has seen constraints around ore from South Africa and Ukraine, according to Mr. Ralhan. “We had more orders for sure than what we could fulfill,” he said.
There are “a number of” Chemours businesses that aren’t accepting more orders at this time because of supply constraints, Mr. Ralhan said. The company hasn’t missed any commitments to customers, he said.
Baltimore-based Under Armour in May said it had canceled customer orders because of supply issues. It expects revenue for the current year will be 3 percentage points lower than originally forecast. For the quarter ending March 31, 2022, the company’s net revenue increased 3%, to $1.3 billion, compared with the year-ago period.
“We have a 10-point headwind just in the first quarter in orders that we’ve canceled, and [that’s] demand that was actually there,” Under Armour Chief Executive Patrik Frisk said on a May 6 earnings call. “So there’s certainly a bit of frustration.”
The company, which announced Wednesday that Mr. Frisk is stepping down as CEO, said Under Armour has canceled roughly $200 million in orders in fiscal year 2023. The most recent order cut is not a first for Under Armour either, as it has been done “numerous times” since 2020 to manage supply-related risks, the company said. Under Armour didn’t comment on Mr. Frisk’s exit.
https://www.wsj.com/articles/companies-cut-orders-build-up-inventory-as-supply-disruptions-continue-11653048000?mod=hp_minor_pos
- You must be logged in to reply to this topic.