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May 14, 2020 By cs

Why restarting the global economy won’t be easy

As the world contemplates ending a massive lockdown implemented in response to COVID-19, Vinod Singhal is considering what will happen when we hit the play button and the engines that drive industry and trade squeal back to life again. 
The U.S. gets close to a trillion dollars of products annually from Asian countries, and most are shipped by sea, which requires a four-to-six-week lead time. Here, containers are stacked at a Georgia Ports Authority facility in Savannah. (GPA Photo: Stephen B. Morton)

Singhal, who studies operations strategy and supply chain management at the Georgia Institute of Technology, has a few ideas on how to ease the transition to the new reality. But this pandemic makes it hard to predict what that reality will be.

“We know pandemics can disrupt supply chains, because we’ve had the SARS experience, but this is something very different,” said Singhal, the Charles W. Brady Chair Professor of Operations Management at the Scheller College of Business, recalling the SARS viral pandemic of 2002 to 2003. But that event did not have nearly the deadly, worldwide reach of COVID-19.

“There is really nothing to compare this pandemic to,” he said. “And predicting or estimating stock prices is simply impossible, unlike supply chain disruptions caused by a company’s own fault, or a natural disaster, like the earthquake in Japan.”

The earthquake that shook northeastern Japan in March 2011 unleashed a devastating and deadly tsunami that caused a meltdown at a nuclear power plant, and also rocked the world economy. It was called the most significant disruption ever of global supply chains. Singhal co-authored a study on the aftereffects, “Stock Market Reaction to Supply Chain Disruptions from the 2011 Great East Japan Earthquake,” published online in August 2019 in the journal Manufacturing & Service Operations Management.

But COVID-19 represents a new kind of mystery when it comes to something as complex and critical to the world’s economy as the global supply chain, for a number of reasons that Singhal highlighted:

  • The global spread of the virus and duration of the pandemic. “We have no idea when it will be under control and whether it will resurface,” Singhal said. “With a natural disaster you can kind of predict that if we put in some effort, within a few months we can get back to normal. But here there is a lot of uncertainty.”
  • Both the demand and supply side of the global supply chain are disrupted. “We’re not only seeing a lot of factories shutting down, which affects the supply side, but there are restrictions on demand, too, because you can’t just go out and shop like you used to, at least for the time being,” he said. “And all this is taking place in an environment where supply chains are fairly complex – intricate, interconnected, interdependent, and global.”
  • Longer lead times. “We get close to a trillion dollars of products annually from Asian countries, about $500 billion from China,” Singhal said. “Most are shipped by sea which requires a four-to-six-week lead time. The fact that logistics and distribution has been disrupted and needs to ramp up again will increase lead time. So, it will take time to fill up the pipeline, and that is going to be an issue.”
  • Supply chains have little slack, and little spare inventory. While manufacturing giants such as Apple, Boeing, and General Motors have more financial slack to carry them through a massive economic belt tightening, their suppliers, spread out across the globe, come in different sizes, different tiers, “and these smaller companies don’t have much financial slack,” said Singhal, pointing to a report of small and medium sized companies in China, “which have less than three months of cash. They’ve already been shut down for two months, and cash tends to go away quickly.

“Many of these companies may go bankrupt,” he added. “So we need to figure out how to reduce the number of bankruptcies. Government is going to play an important role in this, and the stimulus package the U.S. has approved will be helpful.”

Trying to get a handle on how stock markets are responding to all that has happened is like trying to take aim at a moving target during a stiff wind. Volatility has increased significantly since February 13, when the Dow Jones index reached an all-time high of about 29,500.

“That’s because we did not expect the pandemic to spread and disruptions initially were low because of pipeline inventory,” Singhal said, noting that since then the Index dropped sharply, to 18,500 on March 23 (a decline of nearly 38 percent), it picked up and was back to 22,000 by March 30. “The same is true of other stock markets. The Chinese stock market was down 13 percent, but they seem to have the pandemic under control.”

While COVID-19 is making it difficult to predict what the market will look like, Singhal has some ideas of which industries will be most affected.

“Travel, tourism, entertainment, restaurants – businesses that rely on people going out—will take a long time to recover, in terms of profitability and stock price, even once the pandemic is contained,” he said. “People are going to be hesitant to travel after all this. Tourism will take a hit.”

Essentials like groceries are surging as people stock up in reaction to being shut in, but this isn’t a long-term trend. Singhal doesn’t expect this trend to continue as shopping habits and store shelves eventually normalize.

Companies that sell basics, with a strong online presence, will do well, “but industries like automobiles and electronics, which have global supply chains and have a hard time replacing specialized, high-tech components will be affected,” said Singhal, who also has suggestions on the most important issues to address and how to help speed up the recovery and bring supply chains back to normal (or whatever normal looks like after this):

  • The ability to bring capacity online, especially for small and medium-sized companies. “Facilities and equipment may need some time to restart,” he said. “Staffing is a big issue. How quickly can you get people back to work? Also, can you get the raw materials and build up the inventory to support production? That may be tough when pent up demand is being released and everybody is competing for limited supplies.”
  • Distribution. Lead times already are long, he notes, and a sudden increase in demand for logistics and distribution services as everybody ramps up again could extend lead times.
  • Prevent bankruptcies. Government programs need to be established (like the U.S. stimulus package) to keep small- and medium-sized firms in business. This concern extends to second- and third-tier suppliers, and large firms like Apple or Boeing or GM, should do the same for their most critical suppliers.
  • Build slack. “Preserve cash, get new lines of credit or draw down lines of credit, maybe cut dividends or stock repurchases,” Singhal said. “And build inventories of critical components.”

Singhal also stresses the need for transparency, up and down the supply chain: “What that means is, companies need to have a good understanding of what is happening to their customers and suppliers, but not just their immediate, first tier customers and suppliers, but also their customers and suppliers, and so on up and down the line.”

It will be very important going forward for the next several months to monitor the health of the supply chain from both the customer perspective and a supplier perspective, because this is a new world, says Singhal, who adds an optimistic postscript, “It’s a crisis situation now, but I think we can put it back together.”


Source: http://www.news.gatech.edu/2020/05/10/why-restarting-global-economy-wont-be-easy

For more coverage of Georgia Tech’s response to the coronavirus pandemic, please visit our Responding to COVID-19 page.

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized.  Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

Filed Under: Georgia Tech News Tagged With: coronavirus, COVID-19, delivery time, disruptive, economic recovery, Georgia Tech, lead time, operations, pandemic, small business, strategic sourcing, supply chain, supply chain management, Technology and Logistics

April 11, 2019 By AMK

What does ‘best-in-class’ really mean for federal contracts?

Forgive us for a minute while we play a little semantics. What does the term “best-in-class contracts” really mean?

If you are NASA and your SEWP contract is “best-in-class” does that mean the rest of your contracts are, say, “worst-in-class” or “meh-in-class?”

I bring this up now because the new category management memo from the Office of Management and Budget strongly encourages agencies to use “best-in-class” contracts to help meet the initiative’s goals.

Among the things OMB told agencies to do is: “Annually establish plans to reduce unaligned spend and increase the use of BIC solutions for common goods and services, consistent with small business and other statutory socioeconomic responsibilities.”

Keep reading this article at: https://federalnewsnetwork.com/reporters-notebook-jason-miller/2019/03/what-does-best-in-class-really-mean-for-federal-contracts/

Filed Under: Government Contracting News Tagged With: best in class, category management, enterprise infrastructure solutions, GSA, OMB, small business, strategic sourcing

August 7, 2018 By AMK

How cities can get strategic about procurement

Louisville is pioneering an approach that aims to make purchasing and contracting a key ingredient in successfully delivering services.

The Louisville, Kentucky, Free Public Library needs its security guards to do more than simply monitor the entrances to its buildings. “They have to respond to medical emergencies, address disruptive behavior and make sure no one is using drugs in the bathrooms or hiding under the stairwells at closing,” says Belinda Catman, the library’s executive administrator for operations. The toughest part of the job, she says, is dealing with “a diverse population that includes children, elderly, individuals who are homeless, use substances or are mentally ill.” Too often, security guards assigned to the library have been unable or unwilling to fulfill key aspects of the job, leading to excessive turnover.

In trying to fix this problem, Catman uncovered a mechanism driving the mismatch: Security guards were not being hired by the library directly. Instead, the library had tacked on to a $6.5 million Facilities Management Department contract with a private security firm without updating the scope and qualifications requirements. “Unlike at the library, the security-guard job at Facilities involves little interaction with people beyond greeting visitors at the door and asking them to sign in,” explains Catman.

Louisville was treating contracting as a rubber-stamping activity rather than a crucial ingredient to the success of city services. The procurement system was highly compliance-oriented and siloed between departments, which became a particular pain point when departments shared products or services. Louisville is not alone: Cities across the country are falling short of achieving key objectives due to their rote approach to contracting. But the good news is that many of them are ready to get out of the contracting rut and reinvent how they partner with the private sector.

Keep reading this article at: http://www.governing.com/blogs/bfc/col-cities-strategic-procurement-systems-louisville.html

Filed Under: Government Contracting News Tagged With: acquisition reform, performance based acquisition, procurement reform, state and local government, strategic partnerships, strategic procurement, strategic sourcing

December 9, 2016 By AMK

To make government great again, fix the procurement system

Category management is not just a new name for strategic sourcing. Rather, strategic sourcing is one of the tools used by category teams to manage procurement expenditure to achieve mission value.

Unfortunately, much of the writing about strategic sourcing conflates it with category management, creating some misunderstanding about how the two are related. Detangling the definitions can help; though doing so necessarily simplifies processes that in practice are highly nuanced and often overlapping.

category-management-strategic-sourcing

It’s worth the risk, however, in order to clarify what is strategic about strategic sourcing and how category management strategies are successfully executed.

Category management and strategic sourcing differ in scope, processes, data requirements, tools and outcomes.

Keep reading this article at: http://www.govexec.com/excellence/promising-practices/2016/11/make-government-great-again-fix-procurement-system/133324

Filed Under: Government Contracting News Tagged With: acquisition reform, acquisition strategy, category management, procurement reform, strategic sourcing

January 21, 2016 By AMK

DoD looks to joint licensing agreements to streamline acquisitions

As a budget-pressured Defense Department strives to improve efficiency and cut costs, it is increasingly turning to joint enterprise licensing agreements, known as JELAs.  Similar to the strategic sourcing model, a typical JELA involves several DoD organizations merging their requirements for a specific project or service into a single agreement that is carefully tailored to meet all of their needs.

JELAThe approach, which has gained momentum over the past three years, is designed to help DoD better leverage its buying power by requiring organizations with basically the same needs to enter into joint licensing agreements with one or several suppliers. A side benefit to JELAs is that they promote increased conformity and standardization across DoD organizations. “The branches have recognized that multiple applications and multiple iterations of the same application are wasteful, and they are looking to this as a way to get a handle on that,” stated Deltek Federal Analyst John Slye in a recent C4ISR & Networks editorial whitepaper, “DoD’s New Acquisition Model: Joint Enterprise Licensing.”

Keep reading this article at: http://www.federaltimes.com/story/military-tech/it/2015/12/30/dod-looks-jelas-streamline-acquisitions/78069680/

Filed Under: Government Contracting News Tagged With: acquisition reform, competition, cost savings, DISA, DoD, JELA, joint licensing, other than full and open competition, procurement reform, standardization, strategic sourcing

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