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CFOs chase products as war clouds supply chain outlook

CFOs signaled supply chain issues remain a major variable in their outlooks as they detailed in recent earnings calls and presentations their efforts to work with vendors and build back inventories thinned by the pandemic disruptions.  

While many finance leaders are also monitoring the potential fresh threats to their operations from the war in Ukraine, ongoing parts and supply problems are still challenging others, particular those who need parts from the semiconductor sector. 

At electric-vehicle maker Rivian Automotive, CFO Claire McDonough said supply constraints will cut the vehicles it will make this year in half to 25,000, compared to the 50,000 that the company believes its Normal, Illinois, facility could otherwise produce. 

“While we work diligently to alleviate any supply chain challenges, we believe that through 2022, the supply chain will be the fundamental limiting factor to our total output for the year,” McDonough said, according to a transcript of the company’s March 10 earnings call.

The company’s been focused on helping its suppliers ramp up, from having teams on site to assist operating certain shifts, to hiring third parties to improve efficiencies at the sites, Rivian CEO R.J. Scaringe said. “Every morning starts with thinking about which suppliers we need to go speak to and push harder on,” he said.

Supply isn’t ramping up fast enough to keep up with the company’s needs in the semiconductor, electronic and wire harness space, he said. 

By contrast, at electronic retailer Best Buy, CFO Matt Bilunas said he’s seen steady improvements in the company’s ability to keep its inventory stocked since early in the pandemic, even though there was more strain than expected during the fourth quarter holiday season, according to a transcript of March 8 management presentation at a conference.

“So there’s still spottiness, but generally we’re in a very good inventory position,” he said, noting that it can be difficult to find a dishwasher or certain large appliances or a certain brand of an item like Sonus speakers. “We saw a lot of the trade-up-trade-downs over the last two years … but you can usually find something that the customers want and need.” 

Another wrench

Higher freight costs from rising fuel costs and other impacts stemming from the Ukraine war are throwing another wrench into company moves to reduce disruptions to the sourcing and transport products or commodities that their operations depend on. Already, shipping in the Black Sea region has been hobbled, impacting global grain supply, according to The Wall Street Journal.  

For now, executives from such companies as Dick’s Sporting Goods said they would be monitoring the new uncertainties for impacts on shipping costs. 

Asked by an analyst what the company’s 2022 forecast anticipated in terms of rising oil’s impact on supply chains, Dick’s Sporting Goods CFO Navdeep Gupta was careful to point out that the global political outlook has changed since the company’s budget was set early in the year. 

“When we created our budget, the geopolitical situations were not what they are now,” Gupta said, according to a transcript of the March 8 earnings call. Looking ahead, he said, he expected freight expenses will continue to remain volatile and elevated. 

“We did prioritize inventory availability over cost in fourth quarter, including air freighting of some products,” Gupta said. “We’ll have to just continue to evaluate the situation.” 

Campbell Soup Co. executives said the company had no direct exposure to Ukraine and Russia but was watching for any broader economic impact from the crisis, especially on commodities such as wheat and metals, according to executives speaking on the company’s March 9 earnings call. The company, which historically looks to steadily stock up on such items as packaging and ingredients has about 90% of its commodities covered for the year. 

“We tend to have a pretty steady coverage model,” said Campbell Soup CFO Mick Beekhuizen. “Our history on this is to try to generate predictability more than it is to necessarily try to win the commodity guessing market.” 

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