Suppliers Struggle to Meet Demand

The Institute for Supply Management (ISM) Report released in early May brings up questions for suppliers and manufacturers. Manufacturing is on the rise, and suppliers are working hard to keep up with the demand increase. With the economic difficulties of the past few years, supply companies have had to make changes that they normally wouldn’t have to in a time of economic struggle. Some suppliers have had to let go of key management positions, delay or do away with investments, shut down manufacturing lines, and many are left with the question of whether or not they’ll be able to maintain or regain their manufacturing capabilities.



Manufacturers are also concerned that their suppliers won’t be able to handle the increased demand on them with the fact that new product launches are on the rise. OEMs are moving manufacturing responsibilities directly to their suppliers leaving the manufacturers wondering if the suppliers can handle the increase.



The ISM Report released by Norbert J Ore, CPSM, C.P.M, chair of the ISM Business Survey Committee says that "The recent trend of rapid growth in the manufacturing sector continued in April as the PMI registered above 60 percent for the fourth consecutive month. The New Orders and Production Indexes continue to drive the PMI, as they have both exceeded 60 percent for five consecutive months. Manufacturing employment appears to have developed significant momentum, as the Employment Index readings for the first four months of 2011 are the highest readings in the last 38 years. Inventory growth also took place in April after two months of destocking; however, the inventory restocking would appear to be necessitated by the strong performance in new orders. While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs."



Manufacturers will need to assess their supply chains before they go back to business as usual with their suppliers. Industry Week says that manufacturers will need to ask the question: "What supplier process upgrades need to be in place to enhance customer satisfaction, increase capital efficiency, increase profitability and improve long-term shareholder value?" They also mention that OEMs should take a look at increases in new product demand and "juxtapose it with a forecast in incremental new business to be placed with each supplier".



Supply companies are already being stretched because OEMs are not doing as much manufacturing as they used to and are handing off manufacturing responsibilities to the supplier. Supply companies that are struggling may not have been able to handle the supply chain demands, even if there wasn’t a recession. Manufacturers and suppliers are working together to ensure that they will be able to meet the needs of OEMs, but it is ultimately up to the OEM to do the research and determine how to go forward based on what they find. The situation is also being monitored by ocean shipping companies that will be shipping ocean freight overseas for these suppliers and manufacturers. Other transportation industry sectors are watching as well.