Manufacturing Activity Growth Straining Supply Chains

June 3, 2021


The month of May marked twelve consecutive months of growth for U.S. manufacturing activity. However, along with the growth, supply chain issues have developed. High demand combined with supply constraints resulted in the sharpest rise since July 2008 in such cost burdens as semiconductors, raw materials and higher logistics fees, according to IHS Markit.

In a separate manufacturing report, the Institute for Supply Management's Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand.

"Record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy," Timothy R. Fiore, CPSM, CPM, Chair of the Institute for Supply Management Manufacturing Business Survey Committee said in a statement.

Bottlenecks along the supply chain

It's been a year since unprecedented levels of US imports began due to Asian goods that were delayed due to COVID-19 related closures started to arrive beginning in June 2020. However, the level of demand for Asian goods has not let up as US consumers' spending has continued to focus more on goods versus services throughout the pandemic.

Furthermore, shortages in both equipment and of workers at ports led to longer wait times to unload, primarily Los Angeles and Long Beach.

"Our supply chain team faced many headwinds during the first quarter, which included availability of container capacity as we approach Chinese New Year was difficult. Container freight costs were unreliable as we face pricing surcharges due to scarcity. We experienced port delays, especially at LA on some of our inbound product of up to three weeks," Steven G. Burdette, President of Haverty's Furniture, said in the company's first-quarter earnings call.

Since June 2020, delays and higher rates and surcharges have trickled down the supply chain – rail, trucking and small parcel.

Supply chain issues call for contingency plans

"Our team has been developing contingency plans, including workarounds in our factories that may lead to increased cost. We're working very hard to avoid or minimize having supply chain issues lead to production shortfalls that might impact our ability to fully meet improving customer demand," said Jim Umpleby, chairman and chief executive officer of Caterpillar, during Caterpillar's recent earnings call.

Indeed, shippers of all types have had to develop contingency plans, front-load orders and more to ensure inventory is received to keep facilities running. PPG Industries, for example, consolidated warehouses due to lower inventory levels.

Additional supply chain changes are likely as expectations of continued growth in manufacturing will remain high throughout 2021 while growing costs and constraints throughout the supply chain continue.

The expected increase in manufacturing activity will support the Organization for Economic Cooperation and Development (OECD) revised forecast for the US economy that was issued this week. According to the report, the US economy is set to grow this year at the fastest rate since 1984 thanks to government stimulus and the speedy rollout of coronavirus vaccines. It expects US gross domestic product to grow 6.9% in 2021, after contracting 3.5% in 2020.

Last mile delivery still constrained

As the US economy continues to improve, more business-to-business (B2B) volumes are expected to move through FedEx and UPS networks. After shrinking to 30% of UPS and FedEx's total volumes last year, B2B volumes made up 40% of UPS's total volume mix during first quarter with continuing signs of improvement into the second quarter. However, increases in B2B volumes strain already existing FedEx and UPS networks so shippers need to be creative in terms of their last mile delivery strategies, including diversifying providers.


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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Manufacturing Activity Growth Straining Supply Chains

June 3, 2021


The month of May marked twelve consecutive months of growth for U.S. manufacturing activity. However, along with the growth, supply chain issues have developed. High demand combined with supply constraints resulted in the sharpest rise since July 2008 in such cost burdens as semiconductors, raw materials and higher logistics fees, according to IHS Markit. In a separate manufacturing report, the Institute for Supply Management's Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing levels of demand. "Record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy," Timothy R. Fiore, CPSM, CPM, Chair of the Institute for Supply Management Manufacturing Business Survey Committee said in a statement.

Bottlenecks along the supply chain

It's been a year since unprecedented levels of US imports began due to Asian goods that were delayed due to COVID-19 related closures started to arrive beginning in June 2020. However, the level of demand for Asian goods has not let up as US consumers' spending has continued to focus more on goods versus services throughout the pandemic. Furthermore, shortages in both equipment and of workers at ports led to longer wait times to unload, primarily Los Angeles and Long Beach. "Our supply chain team faced many headwinds during the first quarter, which included availability of container capacity as we approach Chinese New Year was difficult. Container freight costs were unreliable as we face pricing surcharges due to scarcity. We experienced port delays, especially at LA on some of our inbound product of up to three weeks," Steven G. Burdette, President of Haverty's Furniture, said in the company's first-quarter earnings call. Since June 2020, delays and higher rates and surcharges have trickled down the supply chain – rail, trucking and small parcel.

Supply chain issues call for contingency plans

"Our team has been developing contingency plans, including workarounds in our factories that may lead to increased cost. We're working very hard to avoid or minimize having supply chain issues lead to production shortfalls that might impact our ability to fully meet improving customer demand," said Jim Umpleby, chairman and chief executive officer of Caterpillar, during Caterpillar's recent earnings call. Indeed, shippers of all types have had to develop contingency plans, front-load orders and more to ensure inventory is received to keep facilities running. PPG Industries, for example, consolidated warehouses due to lower inventory levels. Additional supply chain changes are likely as expectations of continued growth in manufacturing will remain high throughout 2021 while growing costs and constraints throughout the supply chain continue. The expected increase in manufacturing activity will support the Organization for Economic Cooperation and Development (OECD) revised forecast for the US economy that was issued this week. According to the report, the US economy is set to grow this year at the fastest rate since 1984 thanks to government stimulus and the speedy rollout of coronavirus vaccines. It expects US gross domestic product to grow 6.9% in 2021, after contracting 3.5% in 2020.

Last mile delivery still constrained

As the US economy continues to improve, more business-to-business (B2B) volumes are expected to move through FedEx and UPS networks. After shrinking to 30% of UPS and FedEx's total volumes last year, B2B volumes made up 40% of UPS's total volume mix during first quarter with continuing signs of improvement into the second quarter. However, increases in B2B volumes strain already existing FedEx and UPS networks so shippers need to be creative in terms of their last mile delivery strategies, including diversifying providers.

ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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