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The Global Economy, Q&A with Jason Schenker, Prestige Economics, LLC

Question and Answers on the Global Economy, with Jason Schenker, Prestige Economics, LLC

What’s Happening in the Global Economy?

Rob Handfield (Co-Director of SCRC): I’m here with Jason Schenker, president of Prestige Economics, LLC. Jason is a regular speaker at our SCRC meetings, and we’re delighted to have him here again today. And I want to take this opportunity to get Jason’s views on first of all the global economy, which is an area that we’ve been hearing a lot about. We’re at the end of 2012. We’re facing a fiscal cliff, and there’s a lot of questions about what’s happening in the global economy. Jason, I know you shared your views on that this morning, and maybe you’d care to kind of enunciate a few of those briefly for us here.

Jason Schenker (Prestige Economics, LLC): Absolutely, Rob. There are a few things when I look at 2013 that I think are going to be some main themes. First of all, 2012 was some sluggish growth. We saw deceleration of growth globally, but on the whole, the global economy continued to expand. We’re going to continue to see that expansion in 2013, and it’s going to be a little better than 2012. I think Europe’s going to get a little better, especially the second half of the year, as you see the implementation of a single supervisory mechanism. More confidence is restored there. So, some improvements, especially in the back half of the year. That’s going to be more positive really leading into 2014. I think 2013 could be a bit of a snoozer, but I don’t think it’s a year where you wake up in the middle of the night screaming in a nightmare. And I think you’re just dreaming away, waiting for 2014 to happen, and that’s when you see the monetary policies that are accommodative. They’ve kind of pushed things along. You need these policy regulatory things like the fiscal cliff. You need all of this stuff that’s creating uncertainty and volatility and risk for companies—things that make them hesitant to expand and hesitant to hire and hesitant to spend—you need to put these things a little bit behind us, and that’s the second half of 13. Also means commodity prices looking to go a little higher, I think, at the end of 2013. And most of my forecasts for higher prices in 13 versus 12 again, a little more growth, a little higher prices, more accommodating monetary policy. That all pushes things along there. You know, so, just a little bit better than this year. But it’s I think we’re going to see a lot of still the choppiness as the European stuff takes a while to work through, and there’s, you know, we run a risk now with the fiscal cliff of kicking the can down the road a little bit, but maybe not reaching a more permanent solution.

Implications for Companies and their Supply Chains, What Executives Need to Think About to Plan for 2013 & 2014?

Rob Handfield (Co-Director of SCRC): Great. That was a great summary of your presentation this morning. I think one of the things that came out of the discussion too was, you know, what are the implications of this for companies and their supply chains? What are the things that executives need to be thinking about as they start planning for 2013, for 2014, in terms of managing the regulatory issues that are likely to come up? The complexity is a theme that we’ve heard a lot about. The infrastructure issues, we’ve got a strike on the West Coast port, which could cause regulatory disruptions. How do managers plan in light of all of these global complexities and the uncertainty of the economic picture going forward?

Jason Schenker (Prestige Economics, LLC): Rob, that’s a great question, and I think the most important thing people need to know is that we are globally integrated. When people ask me about the global economy, they say, well, what about China? What can we do about China? We can’t really do anything about China, because China in my mind is sort of the midstream of the global supply chain. The United States and Europe, they’re really the big, critical consumer end markets. China and India, in my mind, are two of the big midstreams, where China’s manufacturing a lot of the goods that go to the end market. India’s providing a lot of the services that go into the end market. And other countries like Brazil are going to be the upstream. And so we really need to see health at the end of this global supply chain of goods demand. We need to see that demand pulling more from the U.S. and Europe, and that gets better a little bit next year. What folks in procurement need to keep in mind is kind of how that functions. And I think procurement individuals and professionals are much more attuned to that concept, that the global supply chain works like that, where some folks I talk to in finance, they see China kind of as its own thing, floating out there and not necessarily as integrated. So, just keeping in mind how the global economy is integrated, that’s really important. Another thing that’s important is some raw materials risk at the end of the year. Even though we saw sluggish growth globally this year, global oil demand growth was strong. And you’re seeing a lot from emerging markets. You have very low penetration of per capita oil consumption and very low penetration of per capita automotive ownership. So, people are buying more vehicles. They’re consuming more oil. They’re consuming more power. They’re buying other goods. And while it’s not as big as the end markets out of the U.S. and the Eurozone, you are seeing more endogenous growth in those emerging markets. So that’s driving the cost of raw materials.

While they might not be buying luxury goods or finished goods, you’re seeing a broad purchase of some of them, what we would consider to be the most basic necessities, from a physical goods ownership standpoint. So that’s going to drive a lot of those raw materials costs, I think especially at the end of 2013. You need to be aware of that. Right now also the petroleum product markets are very tight. So diesel demand is going to be a big thing. Diesel inventory, heating oil inventory, that runs the risk of fuel costs to be higher for transport. These are things that need to be kept in mind. And the other thing, aside from the global supply chain and knowing not only how the global economy works but knowing your own company supply. That’s really important. Knowing about raw materials costs and how that’s going to affect you, that’s really important. And then the last thing I’d say is keeping in mind how important it is to be watching costs and doing something like a cost leadership project, where you’re looking at non-commodity spending. We’ve talked about commodity expenditures, but looking at the non-commodity spend areas, trying to address those, trying to make sure you’ve got best practices in place. These things are critical. It’s always a good time to address these issues. You know, a penny saved is a penny earned. And that’s really important to keep in mind, especially now when margins are tight and growth is kind of sluggish. Anything you can do to push those costs lower to improve your bottom line, that’s going to be huge for the companies that can do that. The thing is, Rob, even in a tight market, even in industries that are struggling, there’s always one company that comes out on top. Even in industries that are going to go through consolidation because of high costs, because of other challenges, because of disruptions in their supply chain, the company that can manage those costs best will be the one that comes out on top. And that’s why procurement and supply chain focus is so critical, because that can help companies get to the top.

Advice for Those Going Into Supply Chain

Rob Handfield (Co-Director of SCRC): I couldn’t agree with you more, Jason. I think one of the things that we have in our program here we cover a topic called supply market intelligence, where students actually work on projects trying to understand what are the cost drivers, trying to forecast pricing, raw material costs, service costs, and building market intelligence above these categories that companies are using to make decisions in procurement and logistics and sourcing and what have you. And I think one of the points you made in your presentation was that that age group of 18- to 24-year-olds is one of the highest unemployed groups in the country. And this is a real problem. What would be the advice you would give to people that are in that age group that are either thinking about coming to NC State or thinking about a career in supply chain management? What would be the advice you would give to them in terms of things that you think would be important for them to think about?

Jason Schenker (Prestige Economics, LLC): You know, Rob, I give a lot of presentations like the kind I gave today here at NC State’s SCRC. And I have a lot of folks who ask me this question. A lot of students come up to me and say, what do I need to do? And I would say the same thing. And I would say you need to be hungry. It’s a tight global market, and anyone who’s watching this, you have to know in this market that if you are not hungry, you will not eat. And by that I mean you have to have a real hunger. You have to really show employers you want it. In the career that you have, you really have to dig in. A lot of folks talk about young people today: they’re not willing to work for it, da, da, da, da, da. I think this has always been said about young people. But the truth is if you’re really willing to work for it, and you work really hard and you really push, you really have the hunger, that’s what employers want to see. More than anything, a future employer wants to see you want that job. You’re hungry for that job and that you’re really going to bring it all to the table. It’s really important. Number one thing I can tell you.

Now, when we talk about education as one of those steps to the processes to getting a job, this is a great place to start. This is a great program, and this is a program that gets you a job. There are a number of different majors I had the good fortune to study; it was a different time and a different place. And I did my undergrad in history and German. And you know, it was very fine, but I ended up having to do a lot more education after that to really be the right kind of contributor to a workforce. And the workforce and employers have become even more demanding with what they expect from potential candidates. They need a compelling value proposition. And for those of you who watch this, it’s very important to know that when an employer brings you in for an interview, they want to know, how are you the perfect candidate for this job? And everything you tell them has to lead to you being that perfect candidate. You have to be hungry and you have to have a story that makes sense. If you want a job in supply chain doing a degree here in this program, it’s a very easy sell. They’ve majored in something that specifically prepares them for a role in supply chain and procurement. It’s a very easy story. If you major in other things you might need to finesse the story or fill in a lot of internships to make it compelling. But this is a program that gets you a job. The story is very compelling. They get a lot of practical experience through the different projects they do, which are sort of like mini-internships at times. They get to work with folks in companies. That helps them with the networking. You’ve got the SCRC events where you actually bring in the employers. I mean, this is great, right? They corral in folks who make the hiring opportunity, and you’re here and you show them what you’re doing, this is great. This is like a pre-interview where you can really strut your stuff. And if you are hungry and you did a good job, it really puts you in a position to put that right foot forward to really make a positive impact. The value is huge. When I think of education, you’ve had employers become much more demanding for what they want, you know, the return on the investment is very very high. Because if you’re interested in this stuff it really is a very important field, it’s a very interesting field. And there’s only two ways. There really are only two ways companies make money.

At the end of the day everything else you do in a business is to help the company make money. There’s two ways. You sell stuff, or you help manage the cost of the stuff you buy, in order to make a profit. You’re either selling and that makes money, or there’s a price you pay for the stuff. And the company makes money on that spread between what you buy and what you sell. If you can push down the price on what you buy or keep that price level, that’s going to be really important to keeping the margin the same. That’s really important in business. And the value proposition for procurement workers is almost as high as it is for folks on the sales side. Sometimes it’s higher. And those savings and that value go right to the bottom line of a company. And so you’re really involved in how a company works in keeping its costs under control, in helping it function better. It’s very interesting. There’s a few different aspects of it, whether it’s on the sourcing side or the negotiation side or the contract side. There’s so many different parts of procurement in supply chain that I’ve seen different folks in different niches for what they like. And if you’re interested in a market, it offers you opportunities too. I know folks who just do chemicals or just do certain metals, or just do oil. And then I know other folks who work in corporations who do a whole slew of things, or they switch where they do it or what they’re doing. So there’s a lot of interesting opportunities. It’s interesting. It’s important. It gets you a job. That’s great.

Rob Handfield (Co-Director of SCRC): Well, thanks very much, Jason. That was a great summary, and a great discussion of things that I think a lot of people need to pay attention to. And as you say, it’s all about managing costs but also managing value, and that’s something that all our students in this program by definition have to do a project on. They have a client, they have a deliverable, and they have to deliver something. And they learn a lot in the process. Thank you again for speaking.