Supply Chain Management is different than logistics. Logistics is a crucial component of Supply Chain Management. But compared to 5000-plus years of logistics, contemporary Supply Chain Management is much more able — and agile — targeting when and where and how flows are organized around demand. Supply Chain Resilience often depends on this agility.
A good example of this was briefly outlined in yesterday’s (October 25) ADM analyst call on Third Quarter earnings:
Tom Palmer (Analyst with J.P. Morgan)
I wanted to ask on the barge delays on the Mississippi River. Does this have much effect on your business as we look towards the fourth quarter? Is it — if there is impact, should we mainly think about it being in Ag Services, or just given the diversity of your business, are there offsets to consider?
Juan Luciano (CEO of ADM)
Yes. Of course, we have an unprecedented situation and especially in the Lower Mississippi River that will reduce the volume of exports for Ag Services North America. As it’s going to be a negative impact in Ag Services North America, of course, that — part of that is because of soy and we’re going to lose that volume. In the corn side, we’re probably going to extend the window of exports from North America into the first quarter. So part of the offset is you’re going to see that in the first quarter. I think also part of the offset is South America will be able to export more. We are a large exporter in South America, of course, and you’re going to see that.
And then normally, what we noticed or we expect to happen because we’ve seen it before, is when you export less from North America, where destination marketing sometimes get a little bit of a pop in margins, the products and destination become naturally more valuable, if you will. That was part of the original strategy of going into destination marketing. And then, the other impact is that as beans are not exported that matters not that much demand, local values come down, local bases come down and that may be a boost for crush that you may be able to crush lower-priced beans or maybe eventually lower-priced corn for Carbohydrate Solutions. So, we see some puts and takes. So probably negative for North America Ag Services and Oilseeds, maybe neutral for Ag Services and positive overall maybe for the whole.
My interpretation: Given current constraints on Mississippi barge traffic, ADM’s ability to export US soybeans is constrained. As a result, the company anticipates exporting a higher volume of South American soybeans than usual. By adapting available sources and channels, “destination market” demand for soy will be fulfilled (probably at slightly higher margins than otherwise). Because of current capacity to store the US corn harvest, these exports can be delayed until US river levels recover. US domestic flows not exported will be redirected to US domestic processing, perhaps with slightly better margins for ADM, slightly poorer margins for grain producers.
Sooo… by agile management of product flows across extended time and space, ADM can still fulfill high volume near-term demand despite chokepoints that have emerged. Logistical constraints are mitigated by creatively engaging the global “watershed” of supply to fulfill specific demand.