The following posting can also be viewed and commented within the Kinaxis Supply Chain Expert Community web site.

The reports indicating worldwide manufacturing activity in June are all correlating to a potential speed bump on the road to industry recovery, and provide a reinforced reminder to the overall importance of active demand sensing and sales and operations planning processes through the remainder of 2010.

While Q1 proved to be very optimistic in terms of production growth, manufacturing growth in the U.S. and most of Asia and Europe all turned downward in June.  The Institute of Supply Management (ISM) PMI index was reported as 56.2 in June, down roughly 4 percentage points from April.  The more significant new orders index was recorded as 58.5 in June, down 7.2 percentage points from April, most likely reflecting the fact that a surge in inventory restocking has run its course.

Similar, as noted in a recent Wall Street Journal article, PMI indexes for Australia, China, India, South Korea and Taiwan all reflected similar cutbacks in manufacturing activity in June.  As an example, the China Federation of Logistics and Purchasing PMI fell to 52.1 from 53.9 a month earlier, and South Korea’s PMI fell to 53.3 from 54.6 in May.

The consensus from economic forecasters seems to reflect that this worldwide moderation in production may not necessarily reflect the often feared ‘double-dip” recession, but more likely other economic and market factors. Previous government stimulus programs are winding down, and the Asia based economies remain strong.  In any case, it is yet another sign that challenges remain in the planning of supply chain resources and activities through the remainder of the year.

Now more than ever, S&OP teams will need to be very diligent in noting any significant changes in demand or supply, and plan accordingly.  Overall inventory levels remain low across many industries, and many stories abound noting that key supply shortages are inhibiting critical orders. In a previous Kinaxis  Expert Community blog  commentary, (free sign-up required) I noted reports that such shortages were already impacting key growth industries such as telecom and high tech. All of which imply that any upside flexibility may still present a problem without an adequate planning horizon, or what-if contingency plans.

In a recent Kinaxis sponsored webcast on the very topic of S&OP, some live audience polling was conducted within the webcast.  Trevor Miles of Kinaxis notes in a posting of  live  polling results that over 70% of the attendees of that webcast indicated that there has been a big increase in the importance of what-if capabilities within the S&OP process.  Yet, only 12% indicated that they felt that their organization had adequate what-if capabilities, and over 40% stated their company is only just starting to use what-if capability within the S&OP process. I was also perplexed at these indicators, but the current indicators of manufacturing and supply chain activity should provide some justification to step-up your efforts toward incorporating more what-if scenario planning.

Demand and supply volatility is an unfortunate reality for the remainder of 2010, and the industry leaders of 2010 will be those firms who best navigate the waters of supply chain uncertainty.

How is your organization approaching its supply chain plans for the second-half of 2010?

Bob Ferrari