Use labor productivity to drive down purchase costs

 Suppliers often use wage increases to justify nudging up prices each year, usually 1 to 3%. And it’s hard to argue: – seems reasonable, and it’s less than inflation.
But wages aren’t the real issue – labor costs are.

And the reality is that the average cost of a ‘unit of labor‘ has risen very little, over the last 5 years – only about 1/2% per year.

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7 key factors for US reshoring

After making the case for reshoring in a previous article, PwC identified 7 key factors influencing potential US manufacturing resurgence. Obviously, labor cost is one of those factors but not the only one.

“Industrial manufacturers may increasingly rethink their U.S. strategies, including the merits of continuing to separate production and R&D and producing abroad and importing back to U.S. buyers. Depending on the industry, there may be considerable benefits to establishing regionalized supply chains and R&D facilities in the U.S.,” said Bob McCutcheon, PwC’s U.S. Industrial Products leader.

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U.S. firms in China say their No. 1 fear is rising labor costs

U.S. companies operating in China cited rising labor costs as the biggest risk to their business in the country for the first time, the 2013 China Business Climate Survey Report by the American Chamber of Commerce in China, AmCham China, showed.

Among 325 businesses surveyed, 47 percent said rising labor costs were their biggest risk, just above the number that said slowing economic growth in China was the major concern, the 2013 China Business Climate Survey Report  said. More than a quarter of respondents said they had been the victim of data theft.

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Sustainability Trends

We have picked up a few tips recently from participating in a Conference Board of Canada webinar where sustainability thought leader and governance specialist, Coro Strandberg discussed the drivers and trends of CSR governance and shared emerging best practices in the Canadian context.

We have also been reviewing the Carbon Disclosure Project and other reports to highlight some of the key points that are useful to the supply chain profession.

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US Labor Costs rise sharply in Q4

Labor costs rose at a 4.5 percent rate in the fourth quarter 0f 2012, the fastest gain since the first quarter of 2012. However, for all of 2012, labor costs were up a modest 0.7 percent. That compared to a gain of 2 percent in 2011 and a decline of 1 percent in 2010.

Labor costs were rising more rapidly before the Great Recession, which triggered millions of layoffs and reduced workers’ bargaining power.

The main reason for the increase in Labor Costs was a fall in productivity. U.S. worker productivity shrank in the final three months of 2012 although the decline was caused by temporary factors.

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Green Procurement: knowledge is power

To actually make your supply-chain more green, the first step is to understand what the main environmental impacts are and where they occur in the supply chain or product lifecycle.

I intend to write about what purchasing professionals can actually do to ‘green’ supply-chains and lower their organization’s carbon footprint. My goal is to stimulate ideas and debate; so please feel free to comment or add your ideas.

Increased public awareness, scrutiny from environmental groups, regulatory pressure and concerns about climate change has led companies in a race to establish their eco-credentials; through removing harmful but regulated substances like phthalates (often found in PVC) from products, changing palm oil suppliers to save rainforests, and setting huge targets to remove carbon emissions from supply chains. For many companies, their products’ biggest impacts, and therefore risks and opportunities, are from the supply chain in the production, extraction, cultivation, and transport of raw materials.

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Made in the USA: A Case for Reshoring

Reshoring Gives Economic Hope to Manufacturers

Offshore outsourcing has become one of the hot button political issues of the day. Especially in light of the U.S. economic downturn, there is a desperate need for more jobs for American workers, while at the same time companies are looking for ways to save money to keep themselves afloat. But now it looks as though reshoring might be an idea that makes sense for both sides, making reshoring a trend that just might stick.

The OffShore Outsourcing Controversy

Off-shoring in the manufacturing, customer service, and tech industries has been happening for some time now and opponents feel there are far more negatives than positives to offshore outsourcing (delays, hidden costs, quality control), while others see nothing but an effective strategy for keeping costs down.

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Metals up on ECB and Fed news

Metal prices on the London Metal Exchange have significantly increased last week, boosted by measures from the European Central Bank (ECB), infrastructure spending in China and hopes to see U.S. Federal Reserve (Fed) do more.

The week started with a new stronger than expected decrease of the manufacturing activityin the USA and in China, the largest consumer of metals in the world.

These indicators have put metal prices under pressure Monday and Tuesday, but this decline did not last long, because these statistics also enhanced the likelihood of support measures by the central bank of China and the U.S.

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Brazilian Iron Ore and the Environment

Three U.S. companies that are leaders in their fields–Nucor in steel, Cargill in agriculture, and ThyssenKrupp Waupaca in iron castings–are three of the leading U.S. purchasers of Brazilian pig iron. What are these American leaders doing to ensure that the supply chains of their Brazilian pig suppliers–particularly the camps of men who chop or chain-saw down eucalyptus trees and smolder them for eight days to make the charcoal feedstock for pig–are upholding Brazil’s environmental and labor laws?

As one surveys the Brazilian scene for companies that are recalcitrant in meeting their responsibilities to uphold environmental and labor laws in the supply chain, Brazilian pig producer Cosipar sticks out like a sore thumb. Cosipar has been expelled from Brazil’s National Pact for the Eradication of Slave Labor; it is not a member of the Instituto Carvão Cidadão (Citizens Charcoal Institute), the other Brazilian organization that ensures that its members are observing labor laws throughout their entire supply chain.

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Worker productivity slows as labor costs rise in the final months of 2011

Labor costs increased at a 2.8 percent rate in the fourth quarter. That’s lower than the 3.9 percent rise in the third quarter, but much higher than the initial fourth-quarter estimate of 1.2%.

Growth in U.S. worker productivity slowed at the end of last year, while labor costs rose. Fewer gains in worker output suggests employers must add workers if they want to meet higher demand.

The Labor Department said Wednesday that productivity rose at an annual rate of 0.9 percent in the October-December quarter. While that’s a slight upward revision from last month’s preliminary estimate, it’s half the pace from the July-September quarter.

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