Original equipment manufacturers (OEMs) across the U.S. will be pleased to know that the industry is continuing its upward trend. The Institute for Supply Management's (ISM's) latest monthly Manufacturing ISM Report on Business indicated that October was the 17th consecutive month of expansion for manufacturing, aligning with the overall economy, which is on a 65-month streak of growth. For some, such as the food and beverage sectors, this is due to the upcoming holiday season. Others are seeing positive changes thanks to factors such as high demand and low material costs. All but two of the 18 sectors measured in the report showed growth, with the majority of indexes growing faster than they have in recent months.
Industry expansion is a clear indicator that OEMs should be bolstering their operations to ensure they can meet the increasing demand, and the ISM report provides details concerning how various aspects of the industry are functioning. This information can be used to hone supply chain management strategies and move toward lean manufacturing.
Just how well is the industry doing?
Last month, the ISM report indicated that the September Purchasing Managers Index (PMI) stood at 56.6 percent. Anything over 43.2 percent points toward positive conditions, and from September to October, the PMI rose 2.4 percentage points to 59 percent. The report also looks into how a handful of different factors are faring. New Orders, for instance, is doing the best. With a 5.8 percent month-over-month improvement, this index is currently in the highest standing at 65.8 percent, and it has seen consecutive growth in line with that of the overall index. Supplier deliveries are not far behind, with 4 percent growth, but the rate of change for this index is slowing down. This could indicate that OEMs might experience increased lead times, stock outs or production delays if they do not plan accordingly.
How has the growth impacted the cost of materials?
Along with industry growth comes increases in the price of commodities like metals, fuel and class C components. This can be affected by other factors, such as availability of raw materials, global economic and political conditions and more. The ISM Report highlights those materials which increased or decreased in price as well as those that may have been in short supply the previous month, and this information can help OEMs better plan their inventory management in terms of budgeting and logistics. For instance, in October stainless steel, polypropylene, electrical components and MRO supplies all saw increases in cost. Electrical components were also in short supply last month, which likely drove up their prices. Prices fell for copper, corn-based products, silver, galvanized steel, gasoline, diesel and carbon steel. Aluminum fluctuated throughout the month, indicating this material could be relatively unstable.
How can OEMs put this information to work?
Armed with the most up-to-date information regarding the industry, OEMs can make moves to take advantage of things like an increase in new orders or a decrease in the cost of a material they use. They are also better equipped to avoid pitfalls that could cause trouble for the supply chain. Take supplier deliveries, for instance: only Paper Products reported faster supplier deliveries, while other manufacturing sectors – such as transportation equipment; food, beverage and tobacco products; machinery; primary metals; and fabricated metal products – saw deliveries slow down in October. OEMs, knowing this was an issue last month, could resolve it by establishing a vendor managed inventory (VMI) program with a supplier that can take charge of inventory management and delivery, reducing the risk of stock outs and delivery delays.