The Supply Chain Matters blog highlights August 2021 monthly global manufacturing and supply chain indices and trending relative to global supply chain activity levels.

Published gauges reflecting August 2021 global wide production and supply chain activity indices (PMI) now indicate growth moderation and deceleration. They reinforce that global supply chains are more noticeably being impacted by combinations of severe constraints.

The August data further indicates that while product demand and order levels remain very robust, global supply chains continue to be hampered by multi-tiered capacity constraints, exploding input costs, price inflation, as well as record breaking supplier lead times. There are added signs that production activity across Asia is faltering due to the ongoing restrictions brought about by new variants of COVID-19 across areas of Asia that have resulted in continued workforce restrictions, factory disruptions and consequential reductions in factory and supplier output.

The J.P. Morgan Global Manufacturing PMI® report, a composite index produced by J.P. Morgan and IHS Markit eased to a six-month low with a reported value of 54.1 in August, compared to the July value of 55.4.  As noted in the figure below, the global slowdown is far more discernable in the graph slope.

 

The August report noted that global slowdowns were broad based with PMI readings for 24 countries trending lower than July. Growth continued among larger regions reportedly including the United States, Brazil, Germany, France, India, Japan, South Korea and the United Kingdom. Regions reporting sub-50 contraction activity included China, Indonesia, Mexico, Malaysia, Myanmar, Thailand, Russia and Vietnam.

A significant summation of challenges occurring in August was depicted as:

Supply chain disruption remained severe in August. This was highlighted by a further marked increase in average vendor lead times, with the extent of the lengthening staying close to June’s series record.

The August report again made mention of near record increases in selling prices as rising product demand levels chase constrained supply.

 

Regional Highlights

Separately published individual country reports on August PMI indices again provided eye-catching bylines.

Eurozone manufacturing growth reportedly slowed to a six-month low in August with the pace of growth being noted as the weakest in six months but well above the historical average. On a positive note, the August report indicated that Italy and Spain observed accelerated expansions while Greece experienced its highest reading in manufacturing PMI since April 2000.

Rising supply chain constraints reportedly led to slower production growth across the United Kingdom coupled with rising input prices. Manufacturing output grew at the weakest rate in six months. Highly visible supply chain shortages as manifested in Britain’s mainstream and social media included global fast-food restaurant chain McDonalds apologizing because of the inability to serve milkshakes across the region while the Wetherspoon pub chain apologized after certain varieties of beers were not available to patrons. Truck driver and staffing shortages were consistent themes.

Manufacturers across the United States reportedly experienced steep upturns in new order and production levels but output growth remained hampered by capacity constraints and material shortages. The pace of inflation was reportedly reaching new series high. The August Manufacturing ISM© Report on Business was reported as 59.9 slightly above July’s reading of 59.5. Survey panelists reported that their companies and suppliers continue to struggle at unprecedented levels to meet increasing demand and that production and supply chain activity remains impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products.

Manufacturing companies in Taiwan reportedly indicated a notably softer expansion of production output in August linked to severe supplier delays, material shortages and delays. Limited availability of ocean shipping containers reportedly also contributed to longer delivery times.

One gauge of China’s manufacturing activity slipped into contracting in August. The Caixin China General Manufacturing PMI®, which is generally weighted toward smaller private manufacturers, slipped below the neutral 50 level to 49.2 from the 50.3 reported for July and from the 51.3 value reported in June. Reportedly respondents frequently cited upticks in COVID-19 infection levels and subsequent restrictions have led to dampened demand and greater difficulties sourcing input materials. Lead times reportedly increased to the greatest extent since February. The official manufacturing PMI compiled by the country’s Bureau of Statistics, which tends to be weighted toward large enterprises and state-owned manufacturers, fell again to a value of 50.1 from the 50.4 reported for July and from the 50.9 reported for June. A published report by Reuters commenting on the latest government published data indicated that momentum had weakened due to domestic COVID-19 outbreaks, high raw material prices, slowing exports and stricter government measures. PMI data reflected that demand had reportedly slipped sharply with the new orders index falling to the lowest level this year. There was also a marked downturn in China’s services sector which reportedly drove that index into sharp contraction, the first time since the pandemic had peaked in February of 2020. Some economists are indicating that the data from China may be an indicator of declining export demand for Asian goods during the remainder of the second-half of this year.

A country of increasing concern remains that of Vietnam, which has been the go-to country for businesses seeking to manage supply network risk exposure in China. The IHS Markit Vietnam Manufacturing PMI® fell to 40.2 in August from the 45.1 reported for July. The August report made indication of the worst outbreak of the COVID-19 virus since the pandemic began. Manufacturers in the country continue to be especially impacted with reports of employees sleeping at certain production sites to maintain some form of production. Vaccination rates in the country remain the lowest in Asia.

Similar to Vietnam, PMI indexes for Indonesia, Mexico, Malaysia, Philippines and Thailand reflected PMI readings below the 50-level with many making mention of virus impacts on worker populations and facilities.

 

Supply Chain Matters Insights of the August Data

August’s PMI data again reinforces the stark imbalances occurring among multi-industry product demand levels contrasted with ongoing material shortages, elongated supplier lead times and global transportation capacity disruptions.

The demand and supply imbalance of global-wide vaccines among emerging economies should remain a growing concern for global supply chain management teams as is the growing realities of a lack of flexibilities in production and transportation capacity because of ongoing disruptions and supplier constraints.

Multi-industry supply chain management teams are indeed encountering multiple simultaneous challenges and the outlook for the remainder of this year is to likely anticipate even more challenges.

In a previously published Supply Chain Matters editorial perspective, we opined how the now more visible realities of the state of global supply chains is a time for supply chain management and business leaders to address obvious business realities, set prudent expectations and take a step back to address the bigger picture.

The bigger picture is a renewed focus on addressing supply network resiliency, product management strategies and the ongoing physical and mental health of work teams.  The brute reality is that it is going to take additional months for multi-industry supply chain management teams to realistically align product demand with available supply from multiple planning process and resource dimensions.

 

Bob Ferrari