Regular readers of our Supply Chain Matters Quarterly Newsletter are probably aware that we pay particular attention to the J.B. Morgan Global Manufacturing Purchasing Manager’s Index (PMI) as a key indicator of global supply chain activity. We do so because by our lens, it is the best indicator of such broad global activity.
For the month of April, the index was reported as a value of 50, which now reflects what many multi-industry supply chain planners and procurement professionals probably suspect, the culmination of a broad stagnation in global supply chain activity and a continued period of uncertainty and ongoing challenges in forecasting and planning product demand and supply needs.
Recall that Prediction One of our 2016 Predictions for Industry and Global Supply Chains anticipated another year on uncertainty in planning product demand and supply needs on an individual geographic region or country basis, and as we reach the mid-point of the year, that prediction continues to manifest across multiple industries.
Commenting on the May J.P. Morgan PMI report, the Director of Global Economic Coordination at J.P. Morgan indicated:
“The May PMI data suggest that the global manufacturing sector remains in low gear. Indices for output, new orders and the headline PMI were all at, or barely above, the stagnation mark. The move up in the finished goods inventory index suggests manufacturers are still working to realign stocks with demand.”
Adding to overall concerns is that the two largest Asian manufacturing economies, China and Japan, both contracted in May, while contractions were reported for Taiwan and Malaysia. The decline in Japan was attributed to the effects of the severe earthquakes that struck southern Japan in April. The rate of production deterioration in Taiwan was reported as fastest since October 2015 while manufacturers in Malaysia cut back on purchasing activity for the twelfth month running.
The Eurozone sector PMI also recorded tepid activity for May, dropping to a three month low and adding continued concerns for any meaningful growth in 2016.
Last week The Organization for Economic Co-operation and Development (OECD) issued a statement:
“The world economy will meander along at its slowest pace since the financial crisis for a second year in a row in 2016 as it is ensnared in a “low-growth trap.”
However, the PMI indices for India, Mexico and Vietnam came in with higher levels of expansion indices in May which may be another indication that industry supply chains are changing their product sourcing strategies and current supply buying activities towards other lower-cost manufacturing regions.
Thus, the need for lots of contingency and various business outcome scenario planning activities continue to reverberate across many industry settings as well as the quest for new sources of lower-cost or near-shoring supply of direct materials.
Sales and Operations Planning (S&OP) teams are squarely at the focal point of managing such business uncertainty and resultant implications and will remain likely engaged throughout the remainder of this year as broad-based global supply chain activity potentially moves into more contractive activity while certain select regions show some signs of market growth.
Now more than ever, S&OP teams require higher levels of business intelligence and advanced analytics based decision-making support tools.
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