If you were at all searching for a good bellwether of what’s really going on in the global economy these days, all you need to do is trace down the various supply chains of key industries.  I myself tend to watch the petrochemical, chemical, and semiconductor sectors, since they are the first stop in the raw materials supply for many other industry products..

Last week, global chemicals provider BASF indicated that it would temporarily halt or slow production of 180 of its worldwide plants, to reduce output as much as 25%.  BASF indicated that demand in the automotive, construction and textile industries has declined sharply in recent months, necessitating this need to reduce overcapcity.  BASF will re-review its business in January to ascertain whether conditions warrant any return to full production.  What really caught my eye was a quote from a German financial analyst who follows BASF. “There is currently no demand for chemical products. The customer base is almost nonexistent in the fourth quarter because of inventory drawdown.”

Andrew Liveris, the CEO of another global giant Dow Chemical,  in a telephone interview with business network CNBC stated that his company is likely to announce a restructuring of operations before the end of 2008. He further indicated that a protracted global recession could extend to 2010, and that a price increase on commodity chemicals instituted in the middle of the year has been lost, while price increases on specialty chemicals are still holding. Dow is now forecasting overall shipment volumes to be down 10 to 20 percent for the next few quarters. Rohm and Haas, which is in the process of being acquired by Dow Chemical, also reduced its installed capacity in paints and coatings by 30% this past summer, as a result of declining demand.

Last week as well, a Semiconductor Industry Association (SIA) press release of its annual forecast of global semiconductor sales indicated that September provided the first sign of a slowdown, and that sales for the current quarter, traditionally a strong quarter for microelectronics, are forecasted to decline by 5.9 percent. SIA, which by my observation has always tended to be conservative,  projects 2009 output to decline by 5.6 percent overall. 

The evidence of a global cutback in automotive, construction, textile and high tech supply chains is now in, and output levels are being reduced  While automotive and construction-related are dramatic, the high tech industry is a bit more optimistic.  Let’s all keep our eyes on the final results of the upcoming holiday shopping period.  January may well be another watershed event for further, perhaps permanent, reductions in capacity.

How is your company or organization forecasting 2009 and 2010 demand?  Share your comments for the education of all our readers.

Bob Ferrari

A lot has been written and commented by the mainstream media and Internet bloggers relative to the impending crisis among the big three U.S. automotive companies (Chrysler, Ford, and General Motors) and their current pleas for government assistance.  There are lots of opinions relative to whether these companies should be allowed to either succumb to the natural forces of the market or be given cash to live another day.  I personally believe that the cost of outright failure would be too severe for the U.S. economy to adsorb right now, but I also strongly believe that before these companies are provided any form of assistance there needs to be a complete new thinking and culture of management leadership. Too much traditional thinking and my-boy preservation exists at the cost of global competitiveness, especially in the area of supply chain strategy alignment.

Over on the 21^st Century Supply Chain blog, Randy Littleson called attention to an MSN Money blog entry penned by financial commentator Andrew Horowitz entitled A Plan to fix the U.S. auto industry.  Andrew’s posting is interesting in that it speaks in part to supply chain management’s role in solving some structural problems related to these companies. I especially liked his first observation which points out that these industry players continue to believe that the way to sell cars is to stuff dealers with lots of finished automobiles so buyers can immediately take them off the lot. 

This notion has always perplexed me since so many other companies, both automotive and otherwise, have proven that a lean inventory strategy supported by robust demand sensing and just-in-time production capabilities can accomplish the same purpose without that entire expensive inventory.  Randy Littleson points out in his commentary that Toyota has revolutionized the industry with their relentless focus on lean manufacturing methods, grounded by “pull vs. push” manufacturing flows.  The Internet has radically changed the way many of us research and select our automotive purchases, but this hasn’t translated itself to the big-three’s finished goods inventory strategy.

We could literally add many more paragraphs commenting on Detroit’s, especially Chrysler’s insistence on a supplier management strategy driven by price vs. true collaboration and partnership.  Here again, the Japanese, Korean, and even the German automakers have all made the transition.  An article on FT.com points out that some of Europe’s largest companies, including BMW, Daimler, and Volkswagen are taking extraordinary measures to help out suppliers weakened by the current credit crisis.

Andrew Horowitz stated the following.  “These are times that require new ideas and a brave new management that will embrace a global marketing theater.”  Let’s add another requirement that this new management include innovative supply chain management strategy that will enhance global competitiveness.   No money comes without new management, especially savvy supply chain management.

Bob Ferrari