The November numbers are in and there is solid evidence that industry supply chains across the globe, with few exceptions, have reached significant highs in manufacturing and supply chain output levels. Industry teams are incredibly busy and optimistic in their planning for 2018. But again, Supply Chain Matters needs to call attention of the caution signposts. 

In a prior early November blog commentary commenting on the summary of October’s global output levels, we called attention to the J.P Morgan Manufacturing PMI reading indicating that global manufacturing growth had reached a 78-month high value of 53.5 in October. (Note: a reading of 50 is considered neutral) For November, the headline was that growth has now accelerated to an 80-month high, the highest reading since March 2011. Once more, business has improved across the board in consumer, intermediate and investment goods sectors.

As we have continually noted in our quarterly newsletter analysis, on-average, activity levels are more robust among developed nations. As an example, the Eurozone sector recorded its highest activity levels since April of 2000, with a reading of 60.1 in November. In Japan, the manufacturing sector improved at the sharpest rate in 44 months. Operating conditions across Taiwan’s manufacturing sector rose at the quickest pace in 39 months. The U.S. manufacturing PMI reading slid 0.5 percentage points to 58.2 but remains at a healthy growth pace. Of the four major developed nations that we have been tracking, the average 57.0 PMI levels in November are tracking 3.6 percentage points higher than the average of Q4-2016, reflecting a likely healthy growth rate for all of 2017.

For select developing nations, the highest growth momentum was in India where the manufacturing PMI indicated the strongest improvement in 13 months. Mexico bounced back in the aftermath of significant natural disasters in September to a PMI reading of 52.4 in November from a contraction reading of 49.2 in October. China’s manufacturing sector demonstrated some signs of growth. Of the five developing nations that we track, the average PMI level of 51.5 in November is 0.9 percentage points higher that of the average of Q4-2016.

The key takeaway messages from November’s global supply chain activity levels remain the same:

Production activity levels among developed nations remains trending higher, an indication that near-shoring sourcing strategies are more prevalent. Industry supply chain teams are beginning to focus on improved customer and market response.

Strong global demand continues to test production capacity levels, especially among developed regions. That remains a clear sign that lead times for products are being extended by various domestic and global suppliers. Insure that master data related to planning and material requirements planning systems are updated on a more frequent interval to reflect actual conditions. Now, more than ever, there is a need for agility and more informed response in planning.

The pace of supply chain related job creation is noted as the steepest in six-and-a-half years. With full employment levels being reached among Eurozone and U.S. manufacturing sectors, the supply chain talent perfect storm of demand exceeding skilled people is widening.  Industry supply chain teams and employers need to be sensitized to the reality that in this environment, recruiting is not about finding the most cost-sensitive candidate but rather compensating for desired skills, both current and long-term in nature, based on the realities of the current market.

Inbound price inflation continues across most sectors and incurs additional dimensions of foreign currency fluctuations among developing or low-cost regions. Procurement teams need to factor these realities for 2018 planning of direct and indirect materials supply and of contracted services as-well. The low-hanging fruit of supply chain cost reduction has long since evaporated with added innovation and supplier product innovation as the key focus.

Finally, there remains the realities of heightened geo-political tensions among developed and developing regions. Advanced technologies such as machine-learning, advanced robotics, manufacturing 4.0 and autonomous vehicles bring a promise of increased productivity but heightened concerns among the global supply chain workforce. Throw-in increasing tensions among trading nations, with the notions of the Make America Great Again agenda of the Trump Administration, and the threat of global trade war remains a scenario to be watchful of in the coming year. Analytics-based scenario-based planning and analysis techniques will be a key capability for teams to be prepared for implications of such changes.

 

The year-end holidays are a time of celebration and a time of recognition for all the hard work undertaken this year, and in insuring expected business outcomes were met despite such challenges.

While celebrating the notions that business is good, try to temper the euphoria with the caution signs that always accompany such conditions, and plan accordingly.

Here’s to a more successful 2018.

Bob Ferrari

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