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Supply Chain by the Numbers

- Aug. 27, 2015 -

  Supply Chain by the Numbers for Week of Aug. 27, 2015

Impact of Tianjin Explosions is Big; Walmart Keeping More Inventories in DCs; China Growth Rate Slowing Dramatically; Commodity Prices Continue to Head South, and that's Both Good and Bad



That's the number of local companies impacted by the massive explosions and fire on August 12 in a warehouse area next to the port of Tianjin in China, according to the Mayor there, as reported in a new analysis of the disaster by supply chain risk management solution provider Resilinc. The second explosion registered a significant 2.9 on the Richter scale. More than 120 are dead and dozens more are missing from the explosions that occurred at a 3PL handling chemical products. Resilinc says companies that have suppliers within 15-30 miles of the impact zone may want to presume they will experience 4-8 weeks of delays plus perhaps further delays at the port of Tianjin itself or even other Chinese ports, as volumes are transferred elsewhere. A few days later, another huge explosion ripped through a chemical plant in eastern China, killing one person and injuring nine.




That probably is at most the current level of economic growth in China, well down from the double digit growth rates seen just a few years ago, and even substantially below the 7% rate the government there says is being reached, according to the UK's The Guardian newspaper this week. Some experts have estimated the growth may now be no more than 2-3%. Whatever it is, growth has slowed dramatically, and that is the key factor in the deep recent slump in Chinese stock values - down 22% in the last five trading days through Wednesday and 43% since June, after a heavy run up in the previous 12 months. The Chinese market crash caused wild gyrations - mostly down - in US markets as well in recent days. Falling Chinese demand is driving global commodity prices way down (see other entry nearby), though China unbelievably has some $3.6 trillion in foreign-currency reserves to carry it through the relatively tougher times and stimulate the economy even further.


That's the fall in the Thomson Reuters/CRB Commodity Index over the past 12 months, as commodities of almost every sort continue to take a pounding. The index has now fallen below the lows of 2009, good news for many companies as input costs continue to decrease, but not a good sign at all for the global economy and a disaster for many developing countries that have economies very tied to commodity exports. Falling oil prices are of course leading the way, with prices for US crude falling to about $38 this week, the lowest level since 2009 (and then only briefly). Prices for metals such as aluminum, copper, nickel, zinc, lead and tin are down 22-45% year over year, and have in general been heading down since 2011. Most agricultural commodities are also down. Weak Chinese demand is probably the key driver, with a strong US dollar also a factor, as commodities are priced globally in the greenback.



That was the level of inventory growth in its second quarter at Walmart, less than half its 4.8% growth in sales. Walmart got itself in some trouble in the mid-2000s when for a few years it let its inventories rise faster than sales volumes. Part of the factor in that slowdown in inventory growth is a strategy to slow shipments from DCs to stores, giving Walmart more flexibility to respond to demand at the stores as well as have inventory on-hand in a DC for ecommerce orders. Greg Foran, CEO of Walmart US, also said that by upgrading technology used by its managers and simplifying the process of deliveries and stocking shelves, Walmart can now "keep associates on the sales floor rather than in the stock room."

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