AuthorBenjamin Williams, RUSCA Blog Committee The electric vehicle (EV) market, though lucrative, is dominated by a few major players, making it difficult for new start-up companies like Rivian and Lucid to generate profits and grow their businesses. Quarterly reports from several start-ups indicated weakening interest for many of their newer products, a bad sign for companies already wrestling with high costs. These companies were expecting to gain more from their investors, but due to electric vehicle powerhouses such as Tesla having cheaper and more viable options, investors are shying away from Rivian and other EV start-ups. Shares for Rivian fell about 13%, while Lucid, Nikola and Fisker were down between 2% and 4%. In comparison, Tesla traded only 1.3% lower. This issue is interesting because although the new EV companies have the capacity to meet consumer demand and they have available sources, customers are not meeting the companies' expected demand. Manufacturing vehicles takes a lot of time, requiring companies to create order and production forecasts far in advance to roughly align with consumer demand for a specific production year. However, for the past few years Rivian and other high class electric vehicle brands have overestimated the demand for their vehicles. Rivian has reportedly lost over $6.8 billion from their forecasting mistakes. Notably, the financial crisis is not taking the same toll on all EV start-ups. Industry experts have claimed that the price cuts made by Tesla and the availability of cheaper EV models from traditional automakers (Ford, Toyota, Honda, etc.) reduced the demand for the startups' new vehicles. However, Fisker is an electric vehicle producer that has been able to overcome the Tesla price cuts by offering cheaper prices than Tesla. Consequently, Fisker has seen an increase in the value of their company while Rivian and Lucid are seeing decreases in company value, as consumers have no desire to purchase expensive luxury electric vehicles when there are other vehicles in the market that are much cheaper and also have luxurious amenities. For example, the Model Y from Tesla retails starting at $54,990 after recent price cuts, while Rivian's R1S SUV is priced at a staggering $78,000 and Lucid sells its luxurious Air Pure sedans for $87,400. If the start-up companies want to see better success, they need to find a way to make a cheaper product and make more accurate forecasts. There are consumers who are willing to pay the money for higher quality electrical vehicles. New federal incentives of up to $7,500 for electric cars made in America raised expectations that demand in the industry would jump. However, these start-up companies need to proceed with more caution when determining the demand for their product. Rivian has taken note of their mistakes and moved forward with a plan; the electric pickup and SUV maker released its guidance to investors for the year ahead, and it involves building about 17,000 fewer cars than analysts expected to see. SOURCES: www.reuters.com/business/autos-transportation/ev-startups-lucid-rivian-see-demand-fade-supply-chain-issues-linger-2023-03-01/ https://jalopnik.com/the-supply-chain-crisis-is-still-keeping-rivian-down-1850172266 https://www.bizjournals.com/atlanta/news/2023/03/01/rivian-2022-net-loss-68-billion.html AuthorAnthony Partazana, RUSCA Blog Committee Consumer demand for next-day delivery became highly sought after due to the COVID-19 pandemic causing a drastic rise in e-commerce. In response, Target has been drastically improving its supply chain through sortation centers across the US. In late February, Target announced their most significant investment yet: $100 million to add more than 15 new facilities over the next 3 years to improve delivery speeds and increase customer satisfaction. In 2022, Target announced plans for a “logistics overhaul” based on the success of their pilot sortation center in Minneapolis in 2020. Now, in 2023, Target is continuing to grow on the success of these logistics investments with an investment of $100 million. The company hopes to reach its goal of 15 sortation centers by 2026, and this investment will put them on track to reach its goal. Target currently operates nine sortation centers in Minnesota, Texas, Colorado, Illinois, Georgia and Pennsylvania. Target uses their brick and mortar locations in a unique strategy to fulfill many of its orders. This strategy is known as the stores-as-hubs strategy, and it uses Target’s stores as a starting point for online orders. Sortation Centers represent the next phase in the delivery process. The sortation centers stop at 30-40 local stores to pick up packages for delivery and complete the fulfillment of these online delivery orders. This sortation strategy is said to have led to an increase in next-day delivery by 150%. The effectiveness of fulfillment centers and the stores-as-hubs strategy can be credited to the benefits of increased efficiency and customer service. These fulfillment centers free up Target store employees, as they spend less time sorting through stock for deliveries and can focus on picking and packing customer orders. Along with this, the fulfillment centers clear up space in the backroom at Target stores. These changes are paving the way for Target to fundamentally change how their stores operate, as they are planning on debuting stores focused on same-day delivery and e-commerce in 2024. With the investment in fulfillment centers across the United States, Target looks to save on shipping costs, decrease the delivery time for consumers, and ultimately ensure long-term growth for the company. This also aligns with Target’s motto of “Expect more. Pay Less”, as consumers can expect to see their Target packages at their front step in less than two days while still being able to shop in person for competitive prices. SOURCES: https://www.scmr.com/article/target_invests_100_million_in_supply_chain https://www.furnituretoday.com/supply-chain/its-all-about-speed-target-invests-100-million-ramp-up-supply-chain/ https://www.freightwaves.com/news/target-announces-massive-supply-chain-investment AuthorNick Leung, RUSCA Blog Committee In today’s modern age, technology has made an incredible impact on every aspect of daily life, as technological improvements improve the effectiveness and efficiency of just about every task. Similarly, there are emerging warehouse management trends that are using technology to advance productivity. There are several notable warehouse management trends that exemplify this. The first one is warehouse automation. Warehousing is traditionally labor intensive, but technology has come into play here, as companies set up robotics to single-handedly perform tasks that used to be done by humans–and they potentially do it even better. This poses a concern for employees worried about their jobs, but it would ensure errors are not made as often. These robotics systems could consist of inventory picking, transportation, and inspection. The second trend is Internet of Things (IoT) technology. This enables improved inventory management and analytics by leveraging real-time data from beacons. For example, smart shelves are able to automatically determine when inventory needs to be replaced. The third technology advancement is augmented reality, which may seem complex, but is useful to employees in a warehouse environment. Augmented reality systems aid in ensuring that the right products are sent to the right destinations. The immersive reality finds its use when workers search for the product by showing the optimal route, which could help improve the decision making process for employees through operation visualization. Another technology advancement that is crucial in this type of work environment is related to warehouse security. Security should be emphasized more than it already is in order to ensure the health and safety of workers. Warehouses store a wide variety of products, making them attractive targets for thieves. Therefore, warehouse security should be a top priority to make sure inventory stays safe and sound. Smart locks and broken glass detectors are truly a must in these facilities. Additionally, blockchain technology can be used to make transactions along the supply chain more transparent. Warehouse sustainability is another area that technology can play a major role in. Warehouse operations produce tons of waste, resulting in the need for these facilities to minimize environmental impact. Using automated handling could be one method to move toward green warehousing. There are also certain types of equipment that could emit fewer emissions and operate without lighting. Finally, reducing, recycling, and reusing equipment such as plastic containers and packaging can lessen waste and ultimately limit the industry’s impact on climate. SOURCES: https://www.supplychain247.com/article/2023_tech_trends_in_warehouse_management_execs_should_know_about https://www.startus-insights.com/innovators-guide/warehouse-management-trends/ https://www.supplychainbrain.com/blogs/1-think-tank/post/36129-the-biggest-trends-in-warehouse-management-in-2023 AuthorRyan Salamante, RUSCA Blog Committee As many are already aware, the impacts that inflation has had on recent cycles have been felt in almost every aspect of our everyday lives. Whether it be discovering that the price for the items on your weekly grocery list has more than doubled, to having issues even finding those products on shelves at all, the impact on nearly every business’ supply chain can be attributed to the damaging effects of inflation. In order to combat this, the Federal Reserve Board has been continually raising interest rates in an effort to decrease the fervent demand that has been the cause of this dilemma. While this has been effective in cooling consumer demand in some industries, other markets, such as warehousing, are in a predicament where demand is still far exceeding the available supply (LaRocco). Unfortunately, as a result of the increase in interest rates, warehouse construction that is desperately needed has seen a slowdown in production. It was reported in the 4th quarter of 2022 that industrial construction had fallen 24% and the national average vacancy rate is down to 3.3%, nearly 2% below the 5% average vacancy rate observed in 2020 (Young). With limited available capacity, warehouses are pushing rates up by nearly 1.4% month-over-month and almost 11% year-over-year (LaRocco). Those who are not willing to expend the increased carrying costs are forced to hold their inventory in containers on chassis, which also comes at a price for the company. So while the increased interest rates act with the intention of taming down inflationary pressures, they have actually caused a situation of sticky inflation where the increased costs of carrying by the companies get passed down to the consumers. Ultimately the solution to each individual company’s inflationary pressures and the inflationary pressures of the entire economy is the way in which organizations adjust their inventory management. Along with cutting back in production to ease inventory pile-ups, companies must also decide what they want to do with old inventory sitting in warehouses that ultimately have no prospect of being sold (LaRocco). As time goes on, newer products in greater quantities will be required to be produced by all companies in every industry, which will only add fuel to the current problem. Therefore, the bulk of inflationary effects on consumer products will not likely be resolved until the inventory management of all organizations allows for an increase in available national warehouse capacity. SOURCES: https://www.cnbc.com/2023/02/13/a-new-inflation-warning-for-consumers-coming-from-the-supply-chain-.html https://www.wsj.com/articles/slowing-warehouse-construction-could-extend-squeeze-on-space-experts-say-11675371109 https://www.freightwaves.com/news/viewpoint-inventory-management-key-to-stifling-inflation AuthorKhush Parikh, RUSCA Blog Committee The United States has increasingly depended on foreign countries such as China and Russia to produce critical goods in recent years. However, the Biden administration is keen on bringing the production of goods back to the United States. In his State of the Union Address on February 7th, President Biden emphasized the need to bring the production of goods back to the United States. One of the key strategies to achieve this goal is adding a new requirement to the infrastructure spending bill that would require all parts and materials to be sourced domestically. Additionally, the Biden administration has implemented limitations on EV tax rebates, requiring all battery manufacturing to be from the United States or countries with a free trade agreement with the United States. As tensions between the United States and foreign governments continue to rise, it is imperative for the United States to step up its manufacturing capabilities to safeguard against supply chain disruptions and ensure greater self-reliance. The Build America, Buy America Act (BABA) is an initiative by the Biden Administration, signed into law over a year ago, that has changed how the government spends on projects. The law requires the United States government to use American-made construction materials on federally funded projects. They have made significant progress in rebuilding the American infrastructure and creating manufacturing jobs over the past year, including over 750,000 new manufacturing jobs in the US (Shmavonian) With this act in place, taxpayer dollars will be spent by the government back into the American economy to create a cycle that helps both the taxpayer and the government. As geopolitical tensions rise between America and China, it is crucial for the government to continue to support and promote made-in-America goods by using their taxpayer dollars more effectively. The Biden Administration has promised to work closely with companies and contractors to clear up any questions regarding the act through the Office of Management and Budget (OMB). The OMB is working with these companies to help evolve these guidelines and continue to expand and change them as needed. These federal grants are vital to the United States economy, so the Biden administration wants to make the requirement easy to follow for companies in order to keep the growth of the US economy strong. A key area in which the United States is lacking is the production of batteries. The United States only produces 7% of the world's lithium-ion batteries whereas China currently produces about 75% (Iaconangelo) Not only is the US lacking in the production of batteries, but they also need to improve in the control of the necessary manufacturing materials, of which China also controls about 80% of that market (Iaconangelo) These are staggering numbers, as the reliance on China is too great for a high-value sector. As electric vehicles become the standard for the industry, the need for more batteries is growing at an unprecedented rate. An incentive by the United States government offered EV buyers a $7,500 federal discount along with even more incentives varying per state. This incentive had ended in the past few years as the program was needed to help jumpstart the popularization of EVs in the first place. However, the Biden administration has brought this program back, with a new stipulation that makes the discount only applicable to cars manufactured in America using materials sourced from America or any country with a free trade agreement with America, such as Mexico. This has significantly increased US battery manufacturing investment from many companies and US car manufacturing plants. However, this has excluded European countries from many of the United States' incentives, upsetting the EU. They have been dealing with an economic crisis, as the Russia and Ukraine war has severely disrupted their supply chains. To increase their relations with the United States, EU officials are meeting with their US counterparts to share their EV and battery production strategies. European officials are pushing for the US government to allow European materials to be included within the US laws even though they do not share a free trade agreement with the United States. The American government seems to be on board; working together to create a plan which aids both countries would be highly beneficial as they could share resources to gain market share from China and Russia and take back control of the production of critical materials. SOURCES: www.whitehouse.gov/omb/briefing-room/2023/02/08/new-proposed-guidance-to-boost-american-made-goods-in-federal-infrastructure-projects/ www.wsj.com/podcasts/google-news-update/us-car-makers-ev-plans-hinge-on-made-in-america-batteries/ec5b8cc4-f8ab-4e14-858b-fe5ccf37ba29?mod=Searchresults_pos17&page=1 https://www.wsj.com/articles/european-officials-push-for-joint-effort-with-u-s-on-green-technology-minerals-11675811969 www.wiley.law/alert-OMB-Issues-Proposed-Guidance-on-Requirement-for-US-Produced-Construction-Materials-in-Infrastructure-Projects https://www.eenews.net/articles/u-s-strikes-at-china-with-ev-battery-deal/ AuthorBenjamin Williams, RUSCA Blog Committee The war between Ukraine and Russia has been a nightmare for the Ukrainians in ways beyond the immediate impact of typical war casual times . The ongoing conflicts between Russia and Ukraine have created more issues than Ukraine and many allied nations were ready for. This war has warranted Ukraine to consume ammunition at rates higher than what their ammunition stockpiles have allowed. The answer to such a problem seems like an easy fix, which is to increase the production of weaponry in factories in Europe. However, the country’s military has been shooting more than 5,000 artillery rounds every day, this number is equal to the amount a small country in NATO would produce in an entire year during peacetime. The shortage in munitions is created by a number of problems. Many European nations in the NATO alliance slowed down their ammunition production after the Cold War; however, the U.S. has been pushing for European countries to increase their production of military supplies in case for times like the Ukrainians are facing right now. The onset of the Russia-Ukraine war led to an increase in prices of several commodities including fertilizers, food products, and oil and gas. The supply chain disruptions have increased freight charges, created container shortages, and lowered the availability of warehousing space. It has been almost a year since Russia’s invasion, and the pace of demand for ammunition and explosives has now become a test of Europe’s capacity for industrial military production in order to rearm the allied country. “In many ways this is a war of supply chains and who has the capacity to win the war,” says Morten Brandtzæg, the chief executive officer of Norway’s Nammo. Nammo produces ammunition and guns and has been supplying them to Ukraine throughout the war. But lingering effects created by the pandemic and a shortage of critical raw materials for some explosives have contributed to problems in the supply chain, such as bottlenecking. The supply problem has become increasingly complex because of the involvement allied countries have in the war. The United States and NATO members have sent billions worth of weapons and equipment into Ukraine to aid the country in their fight against Russia. For many of the NATO countries, the conflict has depleted an already-strained munitions stockpile. Some allies sent all their reserve Soviet-era weaponry and are now waiting for U.S. replacements. Now the U.S. and other members of NATO face a dilemma. If these countries keep sending their safety stocks of military supplies to Ukraine, they will most likely increase their own vulnerability to Russian attack. However, if they hold back in their aid to supply Ukraine in order to protect their homeland, they allow Russia to be victorious and take over control of Ukraine. SOURCES: https://www.ft.com/content/ea5b48b1-61e6-4c91-8778-4cc2edaff0ca https://www.cnbc.com/2022/10/22/weapons-shortages-could-mean-hard-calls-for-ukraines-allies.html https://www.businesswire.com/news/home/20230127005214/en/Global-Military-Ammunition-Report-2022-Western-Countries-Were-Not-Prepared-to-Tackle-a-Contingency-Like-the-Russo-Ukraine-War---Market-and-Technology-Forecast-to-2031---ResearchAndMarkets.com AuthorPriya Patel, RUSCA Blog Committee The COVID-19 pandemic has had a significant impact on global economies and societies, including the increase of child labor in some regions. While data is still being collected and analyzed, early reports suggest that child labor has increased in many parts of the world due to the pandemic. Recently, there have been child labor allegations against Hyundai Motor Group. At minimum, four significant Hyundai suppliers have reportedly used child labor in their Alabama operations. Many of these children are migrants from Central America. In the southern U.S. state, both local and federal agencies are looking into whether or not children have performed at additional manufacturer sites within Hyundai’s supply chain. A Reuters inquiry found that workforce companies have employed children in metal-working industries, which is illegal due to the children's age, amputation hazards, and other factors. Employees claim that juveniles as young as 16 labored at Alabama facilities for Hyundai's contractors, welding and even managing forklifts, which is against the law. In order to confirm with child labor regulations and implement suggested measures, Alabama suppliers were obliged to submit impartial third-party audits of their operations. After this, Hyundai started an investigation and a more thorough evaluation of its U.S. supplier relationships after becoming aware of the suspected infractions. According to a story from earlier this week, Hyundai and the U.S. Department of Labor are in discussions to address concerns about underage labor among its suppliers. The agency stated that it is dedicated to ensuring that employers are aware of their legal obligations and working with them to assist them in complying. Hyundai, whose rapid expansion and reputation in recent years have propelled it to become the third-largest manufacturer by U.S. sales, might suffer a new reputation hit if child labor at additional sites in its American supply chain are found to be taking place. Police agencies and government regulators scrutinized the company's capacity to uphold its claimed moral guidelines and adhere to fundamental labor laws in the United States after earlier claims of underage labor. Several of the suggestions reportedly have been put into practice even though the investigation is still underway. New job training courses for vendors are being implemented, application identity cards are being verified, anonymous caller help lines are being set up, and 3rd party employment services are being discouraged from being used by suppliers. Yet there are other significant issues at hand in addition to child labor. According to Reuters, there are also continuing inquiries into the possibility that some of the minors discovered working for Hyundai vendors were actually victims of human trafficking. SOURCES: https://www.reuters.com/world/us/us-lawmakers-press-labor-department-probe-child-labor-2023-02-10/ https://thehill.com/policy/transportation/labor-employment/3853843-lawmakers-call-for-labor-department-to-rid-hyundais-supply-chain-of-child-labor/ https://www.supplychaindive.com/news/hyundai-in-talks-with-labor-department-child-labor-violations/642534/ |
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