Unprecedented—a word that could almost be used synonymously with any reference to 2020. COVID-19 supplied a shock to the economy that was well beyond even the most pessimistic outlook. Many businesses made dramatic shifts to offset uncertainty such as postponing all capital projects, furloughing their employees, or delaying formerly approved project starts. Even as an eternal optimist, having a positive outlook for our economy started to become a challenge. However, more recently over the past three months, the sentiment has changed materially. I have seen firsthand a surge, in not only more firms expressing interest in digital transformation strategy projects, but also new projects either closing or in the final stages to close.
This includes increased mergers and acquisitions, which are typical catalysts to standardize technology platforms, and the largest number of Americans starting new business in over a decade1.
Jump in Business Activity
The US Purchasing Managers’ Index (PMI), a measure of activity in the private sector, was 54.4 for the month of September.2 The Markit Manufacturing Purchasing Managers’ Index is a survey comprised of 600 industrial companies and five indexes: New Orders, Output, Employment, Suppliers’ Delivery Times, and Stock of Items Purchased. Any measure above 50 indicates business activity is increasing.3 This marks the fourth consecutive month the survey has remained above 50, which is especially promising given the velocity of change over the past 6 months. The US Services PMI (formerly Non-Manufacturing NMI)4 fell to a low of 26.7 in April, but has been trending higher as of late. It even hit a 17-month high in August and remained at or above 50 since July. Again, we’re seeing the numbers increase and remain above 50 points to a U.S. economy in recovery.
Another interesting trend over the past 6 months has been the impact on inventory, supply chains, and manufacturing facilities. The initial COVID-19 effect disrupted supply chains, further strained lean levels of on-hand inventory, and sometimes resulted in trimming headcount and reduced manufacturing capacity. Prolonged caution about COVID-19 impacting demand has led to production levels slowly increasing. There was concern about how to operate in this environment, including a slow ramp-up of employees, some of which had been temporarily displaced.
For some industries, inventory levels were severely depleted or out of stock and are just now being replenished, but at significantly greater volumes. Now, more production is needed to fulfill the current demand and replenish inventory at a greater safety stock level to offset another strain to supply chains, which many witnessed earlier in the year. Think paper towels, toilet paper, detergent, napkins, and bicycles; yes, even bicycles.
Jump in inventory demand
What some industry analysts are predicting is a prolonged manufacturing cycle. As Justin Lahart from the Wall Street Journal notes, “The boosts to production that inventory swings bring about are real. Many manufacturers might be aiming to hold higher inventories in case disruptions hit again.”5
Many of our clients are seeing unparalleled levels of demand exceeding historic records. What’s also encouraging is that it is coming from a wide range of industries, ranging from consumer-packaged goods, medical devices, managed services, learning materials, and even book publishing. As consumer spending habits have changed and expectations of “I want it now” are more prevalent, traditional business systems built in the approach of a form representing data input do not provide the needed insight, responsiveness, or flexibility. The ability to dynamically adjust forecasts, pivot to changing demand, shift or increase production schedules, understand complete costing structures in bills of material, and providing customers accurate fulfillment dates highlights, even more, the need to have modern business applications.
In other words, the time a business takes from analysis to action is a competitive advantage. The faster you can analyze, model, and forecast the more forward-thinking clients will capitalize on market shifts ahead of competitors realizing opportunity before it becomes an industry average.
Recent trends point to the US economy is in recovery. More and more companies are recognizing the same trends and are proactively engaging projects rather than being forced into action by external circumstances. What I can say with certainty, even in what appears to be uncertain times, is that it is worth your time to have a conversation with our team on how we can help your company advance its digital transformation strategy.
As Richard Branson, head of Virgin Group Ltd. once said, “It’s only by being bold you get anywhere.”
2 PMI by HIS Markit – https://www.markiteconomics.com/public
3 United States Manufacturing PMI https://tradingeconomics.com/united-states/manufacturing-pmi
4 Institute for Supply Management – https://www.prnewswire.com/news-releases/services-pmi-formerly-non-manufacturing-nmi-at-58-1-301106674.html
5 Wallstreet Journal 092320 https://www.wsj.com/articles/bullwhip-effect-could-boost-u-s-economy-11600858980