Published data reflecting March 2021 global and regional purchasing and manufacturing indices (PMI) clearly indicate that global production is now at full throttle. However, they point to even more headwinds in supplier lead times, extreme cost pressures and now added transportation bottlenecks.

Industry supply chain management teams have the opportunity to once again pivot to provide positive revenue growth opportunities for businesses. However, achieving on-time customer satisfaction needs while meeting budgeted product cost and margin objectives will be a tall order.

 

March Global Production and Supply Network Activity Levels

The J.P. Morgan Global Manufacturing PMI® report, a composite index produced by J.P. Morgan and IHS Markit rose to a ten-year high for the month of March. The report authors summed up March’s global activity levels as exceptional:

Manufacturing production increased at one of the quickest rates over the past decade, underpinned by the strongest expansion of incoming new work for just over a decade.

The caveat, however, was stated rather directly:

Demand outstripping supply also contributed to a marked increase in purchasing costs during March. Input price inflation surged to a near decade high, the pass-through of which led to the steepest rise in output charges since data on selling prices were first tracked in October 2009.

As Supply Chain Matters latest editorial reflection noted, this week’s opening of the Suez Canal after a six-day container ship blockage has resulted in a massive disruption in global shipping scheduling and service levels. Added to that are specific industry supply network challenges such as the global wide shortages of semiconductor devices impacting global automotive manufacturing and other industries. It is no wonder that the message for industry supply chain management teams is to now prepare for the worst and plan for the best likely.

March’s index value was reported as 55.0, 1.1 percentage points higher than that of February.  Solid growth was noted across consumer, intermediate and investment goods sectors.

The average index value for Q1-2021 was 54.1, 0.6 percentage points higher than that of Q4-2020, a typically high activity period as businesses scramble to meet year-end revenue objectives.

A further context is that this activity is occurring when nations across Europe and other countries were again experiencing COVID-19 infection induced added lockdowns. Other nations, such as the United States have been steadily ramping up vaccine supplies and vaccination rates.

As noted in the graph below, global output levels are now at a six-year high, and yet alarm signals are blaring across the board. The graph visualization alone provides the scope of why the Suez canal disruption could not have happened at the worst time. It further implies the potential scope of a downside risk if the fallout from the Suez incident completely upends global transportation and logistics networks with more cascading disruptions.

Global Supply Chain Activity

 

 

Other Highlights

The J.P. Morgan index reflected the five fastest growing nations in terms of production as being Germany, Netherlands, Austria, the Eurozone, and Taiwan.

Separately published individual country reports on March PMI indices similarly provided eye-catching bylines:

  • Manufacturing ISM® Report on Business® rising to a high of 64.7 after ending 2020 at a value of 60.7. In addition to the high levels of production and order backlogs, respondents cited extended lead times, wide-scale shortages of critical basic materials and difficulties transporting products as continuing.
  • IHS Markit Eurozone Manufacturing PMI® posted a value of 62.5, reportedly expanding at a record rate.
  • IHS Markit/CIPS UK Manufacturing PMI® reporting another upturn in United Kingdom manufacturing with decade-high number 58.9, and with business optimism noted to be a seven-year high.
  • The IHS Markit Taiwan Manufacturing PMI® climbing once again to a reported 11-year high vale of 60.8 in March. The average Q1-2021 value of 60.5 reflected a 3.4 percentage point increase from that of Q4-2020.
  • The IHS Markit South Korea Manufacturing PMI® reflected added optimism with a reported value of 55.3 for March, signaling sustained expansion after a long period of little growth.

China, on the other hand provided some mixed signals. The Caixin China General Manufacturing PMI®, which is generally weighted toward smaller private manufacturers declined 0.3 percentage points to a value of 50.6 for March, the lowest reading since April 2020. Noted was the pace of expansion has slowed during the past four months.

China’s PMI index produced by the nation’s Bureau of Statistics climbed to a three-month high value of 51.9 for March. The agency pointed to an accelerated recovery in manufacturing since the Lunar New Year festival.

 

Reader Takeaways

In early January when Supply Chain Matters highlighted the December and full 2020 PMI data, we stated our perspective that some concern and caution was appropriate for the first quarter of 2021 in terms of global production activity levels.  January’s global-wide PMI data reflected similar concerns and trending. There remained a global wide imbalance of ocean shipping containers impacting goods shipments from Asia supply sources. February’s global supply chain activity indicators while generally positive in global production output levels but contained the same warning signs related to available inventories, lengthening supplier lead times and generally higher input costs. Transportation bottlenecks continued and so were noticeable deteriorating service levels.

Now with the March indices available, the warning sirens are blaring but from a different context. There is obviously robust product demand from all three sectors of investment, intermediate and consumer goods. Manufacturing plants across the globe have ramped-up capacity but are hampered by more volatile disruptions in inventory needs and dramatically increasing material input costs.

Thus, are the pressure cooker warning signs for global supply chain management teams entering Q2-2021, and teams accustomed to lean supply chain practices must change their perspectives. As stated in our previous commentary, do not assume business as usual relative to inventory policy, capacity, material or inventory timing considerations.  In this environment, information and developments will continually change. The goal is the ability to anticipate such changes, along with their implications, before they occur.

Strap your seat belts for a wild ride over the coming months.

Bob Ferrari

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