Supply Excellence — Supply Risks to Defuse 4th of July Celebrations

Supply Risks to Defuse 4th of July Celebrations

July 2nd, 2008 · by Tim Minahan · No Comments · LCCS and trade, outsourcing, sourcing, supply management, supply risk

If your CFO (or your family) is still uncertain of the importance of effective spend management, look no further than this week’s Independence Day celebrations. A triple-whammy of supply disruptions, rising prices, and regulatory restrictions promises to take some sizzle out of the holiday’s fireworks displays. These events serve as a doppelganger for the challenges facing spend management professionals today.

First, a February explosion in the port city of Sanshui, China destroyed 20 fireworks warehouses. To protect against further incidents, the Chinese government curbed fireworks exports. Considering that the world has outsourced more than 90% of fireworks production to the region, the shutdown sparked a pyrotechnic shortage. According to an MSNBC article this week, fireworks operators report that supplies have been cut by 40%. A classic example of supply risk.

Shortages on the world market have been exacerbated by the weakness of the U.S. dollar against the yuan. That sent fireworks prices skyrocketing by 20% just in time for the Fourth of July holiday. The situation has gotten so bad that a number of cities and towns have called off their fireworks displays. A classic example of supply and demand imbalances driving inflation.

The supply pinch coupled with drought conditions have prompted governments in California and elsewhere to ban fireworks altogether. According to MSNBC, this has caused quite a challenge to churches and local charities that rely on fireworks sales drives to fund many of their year’s programs. A prime example of the impact of government regulatory intervention. (Okay, maybe not a perfect example, but it does show how regulations are impacting buying decisions.)

These events stand as a lesson (albeit a simplistic one) on the challenges of global sourcing and the risks inherent in sole- or region-specific supply strategies. Spend management professionals must constantly balance costs, performance, and risks (not to mention monitor regulatory intervention), repeatedly shifting their portfolio of supply to satisfy demand and capitalize on ever-changing market dynamics.

So, if your kid asks why there are no fireworks this season, tell them that town officials didn’t practice effective spend management.

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