Philips diversifies transport, wants visibility from suppliers

Koninklijke Philips NV, a maker of consumer and professional medical devices, reported a 5.6% year-over-year fall in fourth-quarter 2021 revenue that came in 0.4% better than analyst expectations, based on data from S&P Capital IQ.

Panjiva data associated with the company shows seaborne imports fell 2.9%, while inventories increased 18.3% in the same period. Part of this may be explained by CEO François Adrianus "Frans" van Houten, who said on the Jan. 24 earnings call that they "have partially moved to alternate modes of transport to bypass reliance on ocean freight and port congestion." Alternate modes could pertain to air transport, or possible nearshoring to rely on train and truck links. These options mean additional costs, increasing the bottom line to ensure reliability, but likely are a component of the company's 73.6% year-over-year decline in fourth-quarter profit.

Van Houten also shed some light on Philips' supply chain operations. The company was "increasingly challenged with suppliers that are unable to give visibility on e-component availability and shipping times or even de-commit orders on short notice," the CEO said, which implies that their processes had surpassed supplier ability to perform effectively and shows just some of the problems faced by supply chain practitioners on the ground. Van Houten added that the de-commitments and delays exacerbated an already tight inventory situation and impacted their ability to try to offset revenue shortfall from the Respironics recall. Companies like Philips that are trying to modernize their supply chains may have to choose vendors that can provide the increasing visibility needed in the current environment.

Despite the problems, Philips still recorded some supply chain successes, Panjiva data shows. Imports of shavers increased 43.6% year over year in the fourth quarter, joined by imports of medical instruments, which were up 13.2% year over year in the same period. Imports of massage appliances and X-ray equipment came in slower but still rose from the previous year, up 5.8% and 0.8%, respectively, despite potential alternate modes not captured in U.S. seaborne data.

Eric Oak is a researcher at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.

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