The December 2018 Manufacturing ISM Report on Business was released this week and included a potential sign of a significant dip in U.S. manufacturing and supply chain activity levels. In this Supply Chain Matters blog, we provide thoughts on how industry supply chain management teams need to be prepared to factor such data in the coming year.

Business media headlines were quick to note this week’s December 2018 Manufacturing ISM Report on Business, especially as it was released in a week of highly volatile up and down equity markets triggered by Apple’s revenue warning.  The December 2018 PMI reflecting U.S. manufacturing and supply chain activity was reported as 54.1 and was a significant 5.1 percentage point decrease from the 59.3 value reported for November.

Questions are being raised as to this is the beginning of a significant downward trend from a notably very robust year of robust activity. Another concern reflects on whether the December number represents the effects of the growing tariffs impacting various industry supply and customer demand networks. differing sign posts

In today’s Heard on the Street opinion column, The Wall Street Journal expressed what this blog felt as well-rounded perspective on the December drop. It further made an insightful observation, namely that these reports are somewhat based on multi-industry panels, and in the case of ISM’s report, the panel consists of inputs from the nation’s procurement and supply management professionals across 18 industry sectors. The WSJ’s perspective was that it represents mood as well as realities. Also expressed was such indices provide important signposts, and that the global economy cycles can turn very quickly.

The notion of mood is an important one that we wanted to magnify for our Supply Chain Matters readers.

If you have been following our highlights of 2019 Predictions for Industry and Global Chains (now available for complimentary downloading in our Research Center) that were published on this blog starting in mid-December, you hopefully derived a sense that themes reflect guarded optimism that come with a lot of downside risks for 2019. We reiterate one important statement declared in our Overall Themes:

The escalating geo-political landscape involving trade conflicts, added tariffs, threats of increased business disruption will result in unprecedented global supply and customer demand network challenges that will occupy the attention of senior management at all levels, especially supply chain management.

The operative word is for organizations to be prepared with a firm understanding of supply chain management process needs and/or risks and deficiencies. Maintain a very careful watch on industry and global chain developments in the context of change, and in needs to educate senior management of options and action planning to mitigate product supply or market risks.

Reflecting back on the December 2018 PMI report, this Editor’s attention riveted to trending. The average ISM PMI value of Q4 was 57.0 for the three months and that was 2.7 percentage points below the average incurred in Q1 of 2018. That is a declining annual trend indicator, yet U.S. manufacturing continues to lead all other major global regional PMI’s reported for December.

The all-important New Orders index declined a significant 11 percentage points from November to December and 11.7 percentage points from the December value. The reported panelists reporting a higher New Orders trend 19.7 percent in December contrasted to 31.4 percent in September.

Finally, we scanned highlights of panelist comments and the industry they represented.  Words reflecting: “Growth has stopped…,” “Brexit has become a problem…,”Customer demand continues to decrease,” “Caution seems to be the outlook…” are signposts to industry changes definitely being observed by industry supply managers. While they remain optimistic, they communicate cautionary observations.

These all directional data points reflecting information and on-the-ground operational observation as opposed to hyped or news biased headlines.

Also remember that reporting comes after the fact with a latency factor of weeks whereas customer demand or geographical regional changes occur in days. Having various strong data analytics capabilities that monitor on the ground data is thus key for the coming months.

Reader Takeaway

The takeaway is investing in the right tools, talent and sales and operations planning decision-making support capabilities that bring the most appropriate and contextual information into decision-making.

Now more than anytime since the last global recession, industry supply chain teams need to be watchful and ready for what will come their way.


Bob Ferrari

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