Background

In our ongoing sharing of detail relative to our Ferrari Consulting and Research Group’s 2021 Predictions for Industry and Global Supply Chains, we preluded our Research Advisory with two general survey perspectives. One was Global Economic and Financial Outlooks and the other was Global Supply Network Outlooks, the latter of which was highlighted in a prior Supply Chain Matters commentary.

Normally, we include in the global supply network overview, highlights, or takeaways from the Institute of Supply Management (ISM) Semiannual Economic Forecast that publishes in mid-December. Normalcy is not the descriptor for the ongoing COVID-19 pandemic, and thus the ISM report actually published this week.

In this Supply Chain Matters blog, we therefore wanted to share the highlights of what U.S. based purchasing and supply management executives anticipate in 2021.

2021 Predictions

Highlights

According to the report, procurement teams expect strong growth in 2021, and expressed optimism about overall business for the first half of the coming year. Overall, manufacturing growth is anticipated to grown 6.9 percent, and depending on specific industry, forecasts vary either higher or lower than this average.  The report notes that revenues are expected to increase in 15 of 18 manufacturing industries that are monitored by ISM panels. Noted is that 59 percent of survey respondents expect revenues to be greater in 2021 than they were last year.

Panel members are expecting an increase in raw material pricing pressures in the coming year, along with improved profit margins. Inbound prices are forecasted to grow on average, 2.5 percent during the first half of 2021, with an overall increase of 2.9 percent in 2021. The report indicates that the variation is broad, in that 52 percent of respondents expect prices in to increase an average of 6.1 percent in the first half of 2021.

We noted in our predictions report that the World Bank Commodity Outlook published in October 2020 predicted an overall 1.6 percent increase in commodity prices.

Respondents in services industries reportedly expect the prices they pay for materials and services to increase 3.5 percent during 2021.

Wages and employment are expected to also return to growth, with employment levels to grow 2.5 percent relative to December 2020 levels.

On the capacity front, U.S. respondents reportedly indicate an 85.7 percent of normal capacity condition, up 9.8 percentage points from the average capacity indicated in the May report. From our lens, that capacity number is astounding, given the overall challenges of worker and material shortage that had to be overcome.

On the capital investment front, purchasing and supply management executives reportedly expect capital expenditures to increase 2.4 percent this year, compared to overall decreased levels in 2020. Almost a third of respondents reportedly anticipated an average increase of 26,4 percent. Slightly over half reportedly expect capital expenditures to stay the same in 2021. These numbers surprised us given other business surveys pointing to executive indicators toward increased investment in manufacturing and operations automation.

Another added note from our perspective was little mention of exploding transportation costs that were prevalent in the latter half of 2020 and our predicted to continue into the first half of this year.  We have a separate 2021 prediction indicating that such cost increases cannot be sustainable without new thinking in supply network sourcing, customer fulfillment and last-mile delivery processes. More of this coming in a future blog.

 

What It Means

The ISM Semi-Annual Forecast data indeed reflects positive optimism, but we tend to recommend a more guarded outlook, at least for the first half of this coming year.  With coronavirus infection rates continuing to spread among developed nations, and with delivery of effective vaccines to global populations expected to continue to have dauting supply and logistics delivery challenges, caution and uncertainty remains a likely perspective for most industries and businesses. The exception is PPE equipment, sanitary and cleaning supplies, pharmaceutical and drug and vaccine production related areas.

The operative phrase is continuous change, and preparation to pivot for whatever challenges the current year brings in supply network management.  However, we need to quickly add that investment in more enhanced sensing and decision-making capabilities is a top agenda item.

 

Bob Ferrari

 

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