This week, published February 2018 data related to manufacturing and supply chain activity continues to reinforce a boom period.

The indices for U.S. wide activity, particularly point to ongoing operational challenges occurring among multiple industry supply chains. While teams remain incredibly busy in day-to-day challenges, Supply Chain Matters again raises caution signs for the need to manage both tactical and strategic transformational needs.

Since November 2017, this blog has cautioned industry supply chains executives that manufacturing and supply chain activities across the globe, with few exceptions, have reached significant highs. In November, the broad-based J.P Morgan Global Manufacturing PMI reading had reached an 80-month high, the highest reading since March 2011.  Business conditions were described as improved across the board in consumer, intermediate and investment goods sectors.

Three months hence, industry teams remain incredibly busy and optimistic in their planning but again, we need to call attention of the caution signposts, and the subsequent implications. Earlier this month, in conjunction with this author’s appearance at the Oracle Modern Supply Chain Experience Conference, I again called attention to tendencies for heads-down while potentially losing the perspective for longer-term transformational capability needs.

This week, the February PMI indices again include concerning signposts the U.S. focused February 2018 Manufacturing ISM Report on Business®. The overall PMI value of 60.8 percent was the highest U.S. activity reported since May 2004, representing a 14-year high mark. February’s activity level was described as buildup in factory inventories after a rather robust Q4 period.

A further clearer signpost is that manufacturers and wholesalers remain challenged with their ability to keep-up with inbound product demand. The Production Index reflected a 2.5 percentage point decrease while the Employment Index surged 5.5 percentage points. That is yet another indication of the challenge in recruiting qualified new workers.

The Supplier Deliveries Index registered a 2-percentage point reduction, while supplier deliveries were noted as slowing, again an indicator that suppliers are also challenged with sustaining product output. Inbound prices reflected in the Prices Index indicate higher raw material prices for the 24th consecutive month.

Included quotes from various industry panel members reflect elongated lead times, full capacity in certain segments, product allocations, tightened labor markets and building commodity shortages including steel.

Supply Chain Matters and other industry sources have already called attention to the exploding freight rates and subsequent costs related to a shortage of U.S. trucking capacity amid this cycle of booming activity.

Any further disruption, capacity or trade-related developments are just going to exacerbate current fulfillment challenges. Similarly, a sharp, unplanned business contraction brings other forms of challenges. The goal remains overall supply chain agility, resilience, more-timely and better informed decision-making capabilities.

Viewing the Forest vs. the Trees

Once again- Many that are experienced in boom and bust cycles know all too-well that periods of rapid business expansion bring lots of operational challenges as well as strategic risks, namely that teams take their eye away from very important tactical and strategic transformational imperatives.

We know that it is incredibly hard for industry supply chain teams to be able to simultaneously focus on constant day-to-day challenges along with responding to line-of-business pressures for near-term expected operational performance metrics such as meeting monthly and quarterly customer service, revenue, and margin objectives.

However, the brute reality remains that business change is occurring faster than it ever has been. Industry disruptors, leveraging new digitally based technologies remain a threat to many industries. Their threat is from more simplified customer interactions, higher, more responsive service levels due to not having the burden of years of complex supply chain management processes and customized business software applications supporting such processes. Leveraging today’s advanced technology in areas of customer demand sensing, the ability to continuously plan and execute faster, augmented by more-informed, cognitive-driven decision-making remains the underlying objective.

Together, line-of-business and supply chain leaders need to be able simultaneously resolve say-to-day challenges while navigating a path toward improve people, process, and technology methods to reduce complexity, dramatically improve customer response needs and associated decision-making. The sign post points to a direction towards digitally-enabled response networks that are anchored in higher levels of agility, resilience and proactive decision-making.

 

Bob Ferrari

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