For multi-industry sales and operations planning (S&OP) teams, keeping an eye on the global economy and on individual global regions has been an important consideration in efforts to meet business planning goals and achieve proper supply chain alignment. Yet, global and individual region economic and supply chain indices often reflect a differing collection of trending and forecasting.
Entering the year, there was little doubt that 2017 would provide a multitude of uncertainties related to both global economies and geo-political developments that could impact economies. In its World Economic Outlook published in October 2016, the International Monetary Fund (IMF) cited a subdued outlook for 2017 with political tensions and policy uncertainties prevalent. The October WTO forecast called for anticipated global growth rate of 3.4 percent in 2017.
Last week’s Spring meeting of world finance chiefs in Washington brought forward a more optimistic outlook. The IMF has raised its forecast for global growth to 3.5 percent, the first time this agency has elevated its original forecast in the past six years. The agency cited a stronger reported growth rate in China in Q1 along with improving economies in Europe and Japan. The IMF chief economist indicated to the Financial Times that the world economy was firing on all engines, albeit not very strongly. Another former IMF chief economist indicated to the FT that the low-growth legacies of the 2008 financial crisis have literally reached an end.
That data alone would obviously fuel optimistic perspectives for integrated business planning.
However, during the past few days, GDP growth and PMI indices point to varying sign points.The U.S. Commerce Department reported that the U.S. economy literally stumbled in Q1, as manifested by a 0.7 percent annual growth rate in the January through March period. That figure reflected the slowest pace of expansion in almost three years. According to various commentaries, American consumers sharply cut-back on spending despite consumer optimism being at an all-time high. A drawback in inventories had a significant negative effect on growth in the quarter. Yet, economists and the Commerce Department remain optimistic since other data points to increased business investment and stronger growth in the months to come. The new Trump Administration has put forth a U.S. GDP growth target of 3.5 to 4 percent for the year.
Meanwhile, a review of major global and regional PMI indices indicates that:
- Global manufacturing and PMI activity reflected by the P. Morgan Global Manufacturing PMI index slipped to a three-month low for April. This recognized benchmark of global supply chain activity registered a value of 52.7 at the close of 2016. The April value was reported as 52.8.
- The ISM Report on Business PMI (United States) decreased 2.4 percentage points in April, while the accompanying New Orders index decreased 7 percentage points in April.
- Eurozone manufacturing expanded at the fastest pace in six years during April.
- China’s General Manufacturing PMI reflected that the country’s manufacturers started Q2 with a further slowdown in production and new business growth momentum.
The above data points, by our lens, are a reinforcement of what integrated business planning processes must now deal with on a continuous basis. There are now multitudes of different data and information points that must be synthesized, weighted, and factored with more emphasis on the weighting of regional or country-specific product demand sensing. General forecasts based on historic data are no longer sufficient. Planning is now a continuous process with continual input at a much more granular level.
Some current examples of the implications can be observed in the consumer packaged goods and automotive industry sectors.
Market data from Nielson indicates that volume sales for packaged food products in the U.S. fell 2.4 percent in the first quarter of 2017. Noted in one of our prior blog postings, many branded CPG food producers continue to deal with challenges of low growth and permanent changes in consumer buying. For the automotive industry, a multi-year period of robust sales growth in North America is showing signs of more subdued growth. Producers such as Ford Motor, Fiat Chrysler and General Motors reported April monthly sales declines, including popular selling truck and SUV models. According to data from WardsAuto.com, U.S. auto dealers are now languished with a 72-day supply of unsold new vehicles. A report by The Wall Street Journal indicates that GM has nearly one million vehicles sitting on dealer lots. Additional manufacturing cutbacks are now being considered even though the late Spring and Summer are traditional periods of higher volume sales.
Our prediction for 2016, and again for 2017 is that resiliency, adaptability, and risk mitigation are very important competencies since the pace of business and of economic data are in constant flux. It is much more important for teams to be able to constantly sense market demand and look-ahead to what is occurring in specific regions.
The takeaway is that S&OP and respective supply chain planning teams are tasked to insure bimodal business plan performance which implies growing the top revenue line, insuring business margins are fulfilled, and that proper contingencies for the business and for the supply chain are always in-play, regardless of the constant ebbs and flows of the global economy.
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