Dive Brief:
- The Institute for Supply Management's September 2019 purchasing managers index (PMI) found domestic manufacturing contracted again in September to 47.8%, the lowest reading ISM has recorded since it was 46.3% at the end of the Great Recession in 2009.
- The downturn has been attributed to the trade war with China and growing economic uncertainty worldwide, according to ISM's report and survey of leaders across various manufacturing sectors. Measurements of new orders, employment, supplier deliveries and exports declined in September. New export index values in particular have been falling since July 2019.
- While any PMI value below 50% signals a contraction, values above 42.9% indicate some growth in the overall economy. The 47.8% PMI for September corresponds to a 1.5% increase in the real gross domestic product (GDP) on an annualized basis, Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee, said in a statement. However, he said, confidence in the business community is continuing to decline.
Dive Insight:
After a low PMI in August (49.1%) ended 35 months of consecutive growth in the manufacturing industry and signaled the industry's transition from "slowing growth" to "decline," September's PMI fell at a faster rate, a 1.3 percentage point drop, according to ISM.
"Global trade remains the most significant issue," Fiore said.
ISM's report cited anonymous survey respondents who have been negatively affected by the trade war, many of whom reported stalling growth, sluggish sales, and rising inventory levels.
"Chinese tariffs going up are hurting our business. Most of the materials are not made in the U.S. and made only in China," reported a firm in the food, beverage and tobacco products category. Another firm, in the plastics and rubber products category said, "We have seen a reduction in sales orders and, therefore, a lower demand for products we order. We have also reduced our workforce by 10 percent."
The excess capacity businesses may experience as a result of slowing growth and output, could be an opportunity as it frees up resources to invest elsewhere, according to Rob Barrett, KPMG's supply chain practice lead. Partnerships with other firms and service providers in the supply chain space can help cut costs, improve efficiency and, if done well, improve the core business.
"If you're an asset-intensive business you're somewhat locked in for certain products," Barrett told Supply Chain Dive in an interview. But if a business begins producing less it means more capacity. Partnerships could be one way to fill this capacity gap, he suggested.
Going forward, there are more areas of the supply chain where partnerships with other firms to handle fleet management, or logistics, or returns could work to the core business' advantage as supply chains become more complex, he said.
A key example of this, according to Barrett, is the growth of last-mile delivery businesses and platforms. Not every firm has an in-house delivery platform and by working with a partner to manage that part of their business they can better focus on core operations and save on costs.
Going forward, he said, "supply chains of the future are more or less he who can best assemble the best capabilities quickest ... to maybe explore market opportunities before committing to significant capital with a new product set or a new market." This level of flexibility, he said, will allow heritage supply chains to navigate disruptions and new market innovations going forward.
