Supply Chain Matters readers across the globe will certainly conclude that this has been a tumultuous week to say the least. Financial, business and broadcast media have featured nonstop reporting and commentary of the current wild swings in financial markets. Investors are genuinely concerned about the debt load of certain countries and the will of politicians to make difficult and informed decisions regarding budgets. U.S. politicians playing their game of brinkmanship regarding the U.S. debt ceiling precipitated an unprecedented downgrade of U.S. credit worthiness by Standard and Poors. Gold has reached an all-time high and it seems that investors are exiting financial markets to sit on the sidelines in safe havens. Its almost a “cave mentality”, and the words “global uncertainty” have taken on sobering meaning.
For the supply chain community, the open question is what will be the impacts of this week’s precipitous events going forward. What can we anticipate? How will customers and consumers react, if at all, in the coming weeks?
Observers, analysts and commentators are beginning to weigh-in and Supply Chain Matters will offer its thoughts.
Bob Parker, Group Vice President of IDC Manufacturing Insights, in his commentary featured on the IDC Community web site, viewed current events as potentially a positive. Bob opines that manufacturing, specifically export growth, and have been leading the current recovery. He notes that American export momentum was substantially halted by the political process in Washington, and that foreign buyers of U.S. made capital goods were possibly sitting on the sidelines waiting for buying conditions concerning interest rates and currency to become more attractive. He argues that there will be more incentive for buyers to place orders in the next 60 days before the dollar deflates. He cautions however that IT and manufacturing spending staying robust is contingent on European nations staying afloat, stabilization in the Middle East and the U.S. government getting its act together and not self-destructing.
On Supply Chain Digest, Editor-in-Chief Dan Gilmore concludes that most decisions in terms of supply chain initiatives and hiring would be put on-hold, awaiting a more definitive view of events. He also concludes that supply chain staffing has been cut too thin, a view that Supply Chain Matters has been expressing for several months now. Dan also provides insightful observations relative to what impacts could come in global markets, currency blow-ups and pricing pressures among manufacturers and retailers.
Our view is the following. The events this week have to be categorized as a pause for concern and surely requires executive and team discussion. This is hopefully not a re-visit of 2008/2009, where customer demand fell off the table in a matter of weeks, and manufacturers and service providers had to take dramatic measures to preserve cash and industry presence. Some industry supply chains such as automotive, retailing and transportation were permanently altered by the events of 2008/2009. Manufacturing activity, however, is at a plateau across the globe, and that is a signal for caution since order rates have slowed.
That stated, for manufacturers and service providers this is a period where attention to business and market intelligence, demand sensing and response management capabilities are critical. Rather than across the board freezing of initiatives and hiring, we believe that the focus should be centered on what capabilities are needed to sense and respond to volatile and changing market conditions in the coming months. Scenario planning of various market scenarios are again key, along with a vibrant and open Sales and Operations Planning (S&OP) process that can deliver candid news to executive teams. The notion that increases in inbound materials costs can be passed along in customer price hikes will continue to be challenged by customers and retailers, and manufacturers will need to adjust to these realities. Procurement teams need to pay close attention to the overall health of the supply base and not push too far for those added cost concessions.
While, as Bob Parkers points out, export markets have been the engine for U.S. manufacturers, warning signs are evident. China continues to experience high levels of inflation, and economic events concerning China need close attention. China just reported its biggest trade surplus in two years and there are signs that China’s leaders may allow the value of the Renminbi to rise more quickly to stem growth. We also know that China holds considerable investment in U.S. treasuries and may be getting concerned regarding current events and the long-term prospects of the dollar. India has also come under inflationary and growth pressures and signs are emerging of a potential slowdown in certain markets. Tata Motors just announced disappointing first quarter earnings and sales of the Nano tumbled significantly in July. The Middle East remains uncertain as unrest continues among various nations.
For certain industries, there are realities that previous staffing and IT cuts have compromised quality control and service requirements and initiatives to fix these problems should continue to be supported. Supply chain professionals may be suffering from continuous stress and over-work but now may not be the time to jump ship. Your skills and capabilities are needed more than ever.
A final note concerns technology and software providers. The industry may have experienced a vibrant period of customer investment in technology, and in certain areas such as control, sensing and responding, that may continue. However, Supply Chain Matters advises caution since sales and buying evaluation cycles will surely extend themselves once again. If you were feeling pressures from customers in areas of annual maintenance and upgrade costs, those pressures will escalate in the coming weeks as end-users and IT teams need to come-up with new areas to offset costs and unpredictable revenues. Buyers will seek value and numerous references, and will continue to pit one vendor against others in terms of the best deal. The C-suite once again, now factors in technology decisions.
We encourage our readers to also share their observations regarding this week’s implications for supply chain activity in the coming months.
Bob Ferrari
