Supply Side News Archive

Manufacturing picks up 1% in March
Plastic Prices Rise Despite Slow Demand
PPI for Finished, Intermediate and Crude Goods Rises
ISM: Manufacturing Continues to Expand, Prices Rise
MRO Sourcing 2012: Optimism Reigns
PPI up 4.1% from January 2011
New Orders for Durable Goods up 3% in Dec. 2011
Purchasing Managers Index up 1% in January
Freight Rates on the Rise
U.S. Industrial Outlook: Growth to Outperform Overall GDP Growth
Orders, Production, Employment Up
Durable Goods Orders Fell 0.7 Percent In October
Conference Board Leading Economic Index 'Rebounds' in October
Purchasing Managers Index Declines 0.8 points in October
Manufacturing Expanding, but Outlook Uncertain
Machinery Orders Spike Higher
Wholesale Prices Unchanged in August
CEOs Want Integrated Supply Chains
Lean manufacturing in the spotlight - theory put into practice
Purchasing Managers See Continued Growth
Wholesale Prices Up 0.2% in May
RFID Tracks Clean-Room Laundry for High-Tech Companies
New Orders, Production, Employment and Inventories Growing
Price Increases Don't Appear to Be Going Away Anytime Soon
Index Sees Continuing Improvement in U.S. Economy
Record Year for Procurement Outsourcing
Supply Chain News: A Picture Tells the Sad but True Tale, as Commodity Prices Continue Strong March
Contracting MRO services could mean trading control for cost benefits
Industrial Production Sees Biggest Gain in Five Months
Stop the Presses: Freight Rates to Rise in 2011

 

Manufacturing picks up 1% in March

From the Institute for Supply Management Report on Business®z - April 2, 2012

Economic activity in the manufacturing sector expanded in March for the 32nd consecutive month, and the overall economy grew for the 34th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 53.4 percent, an increase of 1 percentage point from February's reading of 52.4 percent, indicating expansion in the manufacturing sector for the 32nd consecutive month. The Production Index increased 3 percentage points from February's reading of 55.3 percent to 58.3 percent, and the Employment Index increased 2.9 percentage points to 56.1 percent. Of the 18 industries included in the survey, 15 are experiencing overall growth. Comments from the panel remain positive, with several respondents citing increased sales and demand for the next few months."

 

Performance by Industry

Of the 18 manufacturing industries, 15 are reporting growth in March, in the following order: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Petroleum & Coal Products; Paper Products; Machinery; Miscellaneous Manufacturing; Wood Products; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. The two industries reporting contraction in March are: Computer & Electronic Products; and Chemical Products.

Read the full report>>

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Plastic Prices Rise Despite Slow Demand

From Plastics News, March 29, 2012

North American prices for polyethylene and polypropylene resins increased for the second straight month in March, with feedstock issues and supplier discipline overriding slow demand growth for both materials.

Regional prices for all grades of high low and linear low density PE are up an average of 3 cents per pound since March 1, according to buyers contacted by Plastics News. PP prices in the region are up an average of 5 cents per pound in that same span, buyers said.

The PE move is the second half of a 6-cent attempt originally announced for Jan. 1. The first 3 cents of that move took hold in February. The 6 cents in total increases seen so far in 2012 represents a hike of about 9 percent since Jan. 1, based on blow molding grades of HDPE for dairy applications.

Including a surprising 5-cent hike that hit the market in December, prices have jumped almost 15 percent in the last four months.

The March increase found a grip in the market even as regional PE demand was "steady to slow overall," according to the PetroChem Wire consulting group in Houston. Maintenance turnarounds have limited supplies of ethylene feedstock at some locations, but market watchers said that PE makers' desire to increase margins played a strong role as well. Read full article>>

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PPI for finished, intermediate and crude goods rises

From the U.S. Department of Labor, Bureau of Labor Statistics, March 15, 2012

The Producer Price Index for finished goods advanced 0.4 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.1 percent in January and decreased 0.1 percent in December. At the earlier stages of processing, the index for intermediate goods moved up 0.7 percent and crude goods prices increased 0.4 percent. On an unadjusted basis, the finished goods index rose 3.3 percent for the 12 months ended February 2012, the smallest year-over-year rise since a similar 3.3-percent advance in August 2010.

 

Finished goods

In February, the increase in finished goods prices was led by the index for finished energy goods, which moved up 1.3 percent. Prices for finished goods less foods and energy rose 0.2 percent. By contrast, the finished consumer foods index edged down 0.1 percent.

Finished energy: Prices for finished energy goods advanced 1.3 percent in February after declining in each of the previous two months. A 4.3-percent jump in the gasoline index accounted for most of the increase. Advances in the indexes for residential electric power and home heating oil also contributed to the rise in finished energy goods prices.

Finished core: The index for finished goods less foods and energy moved up 0.2 percent in February, the third straight monthly increase. A third of the February rise can be traced to a 0.6-percent advance in prices for pharmaceutical preparations. An increase in the index for civilian aircraft also contributed to higher finished core prices.

Finished foods: In February, the finished consumer foods index inched down 0.1 percent, the third consecutive monthly decrease. A 2.8-percent drop in prices for dairy products led the February decline in the finished consumer foods index.

 

Intermediate goods

The Producer Price Index for intermediate materials, supplies, and components moved up 0.7 percent in February following a 0.4-percent decline in January. Most of this advance can be attributed to higher prices for intermediate materials less foods and energy, which climbed 1.0 percent. The index for intermediate energy goods rose 0.3 percent. By contrast, prices for intermediate foods and feeds edged down 0.1 percent. For the 12 months ended in February, the intermediate goods index advanced 3.3 percent, the smallest year-over-year increase since a 2.9-percent rise in December 2009.

Read the full report>>

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ISM: Manufacturing Continues to Expand, Prices Rise

From the Institute for Supply Management™, March 1, 2012

Economic activity in the manufacturing sector expanded in February for the 31st consecutive month, and the overall economy grew for the 33rd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The PMI registered 52.4 percent, a decrease of 1.7 percentage points from January's reading of 54.1 percent, indicating expansion in the manufacturing sector for the 31st consecutive month. The New Orders Index registered 54.9 percent, a decrease of 2.7 percentage points from January's reading of 57.6 percent, reflecting the 34th consecutive month of growth in new orders. Prices of raw materials increased for the second consecutive month, with the Prices Index registering 61.5 percent. As was the case in January, new orders, production and employment all grew in February — although at somewhat slower rates than in January. Comments from the panel continue to reflect a generally positive outlook for the next few months."

 

Performance by Industry

Of the 18 manufacturing industries, 11 are reporting growth in February, in the following order: Apparel, Leather & Allied Products; Machinery; Primary Metals; Transportation Equipment; Petroleum & Coal Products; Fabricated Metal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products. The four industries reporting contraction in February are: Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components. Read full report>>

 

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MRO Sourcing 2012: Optimism Reigns

From MyPurchasingCenter.com, February 19, 2012

MRO buyers are optimistic these days.

Amid a host of challenges--including an anemic economic recovery--procurement professionals with responsibility for sourcing Maintenance, Repair and Operations goods and services are looking forward to 2012 and are open to change, viewing it as opportunity for improvement.

That's an outlook voiced by Aaron Hoover, Procurement Supply Manager at MillerCoors and echoed by MRO procurement pros at such other companies as Siemens Corporation and The Manitowoc Company.

"I'm optimistic because the opportunities to improve in MRO abound," Hoover says. "We in procurement are changing and so are our suppliers. It all presents opportunity for us to take a look at what the possibilities may be."

Hoover who has worked in procurement for three years at MillerCoors is implementing an agreement with a new power transmission products supplier. The company has an agreement with an integrator at four of its breweries in the western U.S. and is extending that to its four eastern breweries. The integrator will be purchasing power transmission products from this new supplier for MillerCoors.

Under an agreement with an integrator, a provider takes on responsibility for MRO purchasing, managing inventory and other related activities for its customer.

Consistent processes and lower costs are two benefits to this arrangement, Hoover says. The integrator also helps with one of his biggest challenges: Data.

"I am floored by the complexity of data surrounding all the parts and pieces of MRO," he says.

Data can be inconsistent--causing a breakdown in the process, he says. "What's really astonishing is that I don't know anyone who really has a handle on how to effectively and efficiently manage it."

Read the full story>>

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PPI up 4.1% from January 2011

From the U.S. Bureau of Labor Statistics, February 16, 2012

The Producer Price Index for finished goods advanced 0.1 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods declined 0.1 percent in December and moved up 0.2 percent in November. At the earlier stages of processing, the index for intermediate goods fell 0.4 percent in January, and crude goods prices increased 1.5 percent. On an unadjusted basis, the finished goods index advanced 4.1 percent for the 12 months ended January 2012, the smallest year-over-year rise since a 3.6-percent increase in January 2011.

 

Stage-of-Processing Analysis

Finished goods

In January, the rise in finished goods prices can be attributed to the index for finished goods less foods and energy, which moved up 0.4 percent. By contrast, prices for finished energy goods and for finished consumer foods declined 0.5 percent and 0.3 percent, respectively.

Finished core: The index for finished goods less foods and energy moved up 0.4 percent in January, the largest increase since a 0.5-percent rise in July 2011. In January, about forty percent of the finished core advance can be attributed to prices for pharmaceutical preparations, which climbed 2.0 percent. Higher prices for light motor trucks and household appliances also were factors in the increase in the finished core index. (See table 2.)

Finished energy: The index for finished energy goods fell 0.5 percent in January, the fourth straight monthly decrease. Leading the January decline, prices for residential electric power moved down 1.7 percent. Falling prices for residential natural gas also contributed to the decrease in the index for finished energy goods.

Finished foods: Prices for finished consumer foods moved down 0.3 percent in January after falling 0.9 percent in December. Over eighty percent of the January decline can be attributed to the index for fresh and dry vegetables, which fell 8.8 percent.

 

Intermediate goods

The Producer Price Index for intermediate materials, supplies, and components moved down 0.4 percent in January following a 0.2-percent decline in December. Over three-fourths of the broad-based decrease in January is attributable to prices for intermediate energy goods, which fell 1.4 percent. Also contributing to the decline in intermediate goods prices, the index for intermediate goods less foods and energy inched down 0.1 percent, and prices for intermediate foods and feeds decreased 0.4 percent. For the 12 months ended in January, the intermediate goods index rose 4.2 percent, the smallest year-over-year advance since a 2.9-percent increase in December 2009. (See table B.)

Intermediate energy: Prices for intermediate energy goods fell 1.4 percent in January after two consecutive increases. The index for utility natural gas, which dropped 2.7 percent, was a major contributor to this decrease. Lower prices for commercial electric power and residual fuel also were factors in the decline in the intermediate energy goods index. (See table 2.)

Intermediate core: Prices for intermediate goods less foods and energy edged down 0.1 percent in January, the fourth consecutive decline. Leading the January decrease was the index for basic organic chemicals, which fell 4.4 percent. Lower prices for cold rolled steel sheet and strip also contributed to the decline in the intermediate core index.

Intermediate foods: The index for intermediate foods and feeds fell 0.4 percent in January following a 0.8-percent decrease in December. A 5.4-percent drop in prices for natural cheese (except cottage cheese) accounted for most of the January decline in the intermediate foods and feeds index.

 

Crude goods

The Producer Price Index for crude materials for further processing moved up 1.5 percent in January. For the 3-month period ending in January, crude material prices rose 2.6 percent following a 1.1-percent decline from July to October. In January, nearly half of the broad-based monthly advance is attributable to a 1.6-percent increase in prices for crude energy materials. Also contributing to the January advance, the index for crude foodstuffs and feedstuffs moved up 1.6 percent, and prices for crude nonfood materials less energy rose 0.6 percent. (See table B.)

Crude energy: The index for crude energy materials increased 1.6 percent in January. For the 3-month period ending in January, prices for crude energy materials climbed 7.5 percent subsequent to a 2.2- percent decline for the 3 months ended October 2011. A 5.7-percent jump in the index for crude petroleum was responsible for the January monthly advance in crude energy prices.

Crude foods: The index for crude foodstuffs and feedstuffs increased 1.6 percent in January. From October to January, prices for crude foodstuffs and feedstuffs edged down 0.2 percent after rising 0.9 percent in the 3 months ended October 2011. Almost sixty percent of the monthly advance in January can be traced to a 6.4-percent increase in the corn index. Higher prices for slaughter steers and heifers and for soybeans also were factors in the rise in the crude foodstuffs and feedstuffs index.

Crude core: The index for crude nonfood materials less energy moved up 0.6 percent in January. For the 3 months ending in January, crude core prices fell 1.7 percent subsequent to a 2.9-percent decline from July to October. The January monthly rise was led by a 3.3-percent increase in the index for carbon steel scrap. Higher prices for corn also contributed to the advance in the crude core index.

Read the full release>>

 

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New Orders for Durable Goods up 3% in Dec. 2011

Reprinted from U.S. Census Bureau

New orders for manufactured goods in December, up two consecutive months, increased $5.3 billion or 1.1 percent to $466.2 billion, the U.S. Census Bureau reported today. This followed a 2.2 percent November increase. Excluding transportation, new orders increased 0.6 percent.

Shipments, up seven consecutive months, increased $3.4 billion or 0.7 percent to $459.4 billion. This followed a 0.2 percent November increase.

Unfilled orders, up twenty of the last twenty one months, increased $12.7 billion or 1.4 percent to $911.5 billion. This followed a 1.3 percent November increase. The unfilled orders-to-shipments ratio was 6.00, down from 6.13 in November.

Inventories, up twenty six of the last twenty seven months, increased $0.4 billion or 0.1 percent to $610.1 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent November increase. The inventories-to-shipments ratio was 1.33, down from 1.34 in November.

New Orders

New orders for manufactured durable goods in December, up five of the last six months, increased $6.3 billion or 3.0 percent to $214.3 billion, unchanged from the previously published increase. This followed a 4.2 percent November increase.

Transportation equipment, up two consecutive months, had the largest increase, $3.0 billion or 5.4 percent to $58.3 billion.

New orders for manufactured nondurable goods decreased $1.0 billion or 0.4 percent to $251.9 billion.

Read the full report>>

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Purchasing Managers Index up 1% in January

Reprinted from Institute for Supply Management

Economic activity in the manufacturing sector expanded in January for the 30th consecutive month, and the overall economy grew for the 32nd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 54.1 percent, an increase of 1 percentage point from December's seasonally adjusted reading of 53.1 percent, indicating expansion in the manufacturing sector for the 30th consecutive month. The New Orders Index increased 2.8 percentage points from December's seasonally adjusted reading to 57.6 percent, reflecting the 33rd consecutive month of growth in new orders. Prices of raw materials increased for the first time in the last four months. Manufacturing is starting out the year on a positive note, with new orders, production and employment all growing in January."

Performance by Industry

Of the 18 manufacturing industries, nine are reporting growth in January, in the following order: Apparel, Leather & Allied Products; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; Fabricated Metal Products; Paper Products; and Primary Metals. The seven industries reporting contraction in January — listed in order — are: Plastics & Rubber Products; Furniture & Related Products; Wood Products; Chemical Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Textile Mills.

Read the full report>>

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Freight Rates on the Rise

Reprinted from Supply Chain Digest

Public Rail Carriers Show Profit Growth Well Above Changes in Volumes; LTL Carriers are Slowly Turning the Financial Ship Around On Rate Increases, Business Discipline

As always, we enjoyed reviewing the quarterly "State of the Freight" report from the transportation industry analysts at Wolfe Trahan. Though the survey of several hundred shippers is meant to support the needs of investors in the transportation sector, always there is some great insight and data of use to logistics professional as well.

Included in the report was the firm's own analysis of pricing trends across several modes. It found that truckload pricing across a group of six large TL carriers was up an average of 3.6% in Q3 versus a year ago, and 1.6% versus Q2. Rates on a year-over-year basis had been up between 4.7-5.3% over the previous four quarters, and were up sequentially 2.6% in Q2 after dipping 1.1% sequentially in Q1.

The story was even stronger in the LTL sector, which saw average rates increases of 6.9% in Q3 year-over-year, and 3.4% versus Q2. LTL Rates had been dropping sharply on a year-over-year basis from at least Q1 2010 and most likely before that until the sector ended the slide in Q2 of this year, when rates also rose by a strong 5.1% over 2011. (These numbers are all net of fuel surcharges.)

Interestingly, that 6.9% growth in rates in the LTL sector exactly matched the level of the general rate increase many LTL carriers announced in August and September, meaning those price hikes appear to have been realized in the market.

The report notes that LTL carriers such as Con-Way and FedEx Freight have culled much unprofitable customers and freight from their networks in recent quarters.

Shippers, however, have relatively modest expectations for rate increases in 2012, the survey found.

On average, shippers expect truckload rates to rise 2.6% in 2012, down a bit from the expectations for a 3% rise in the Q2 survey. The expectations for LTL are for an average 2.1% rise next year, again down a bit from the predictions for a 2.5% rise in the previous quarter's survey.

Read the full report>>

 

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U.S. Industrial Outlook: Growth to Outperform Overall GDP Growth

Reprinted from Modern Distribution Management

U.S. manufacturing industrial production rebounded in the third quarter of 2011, growing by 4 percent, and is extending into the final months of the year, according to the Manufacturers Alliance for Productivity and Innovation (MAPI) U.S. Industrial Outlook, a quarterly report that analyzes 27 major industries.

"The growth is being led by the energy, transportation, and industrial equipment industries," said Daniel J. Meckstroth, Ph.D., MAPI chief economist and author of the analysis. "We believe the continuing pickup in domestic auto production will also be a major driver of overall economic growth next year."

"We project that the pace of manufacturing growth will outperform overall GDP growth. Pent-up demand for postponed consumer durable goods continues to exist, particularly in motor vehicles," he added. "In addition, firms are profitable and have the need to spend more for both traditional and high-tech business equipment, and reasonably strong growth in emerging economies is still driving U.S. exports."

The report offers economic forecasts for 24 of the 27 industries. MAPI anticipates that 18 of the 24 industries will show gains in 2012, led by housing starts with 20 percent growth, albeit from severely depressed levels in 2011. Three industries will remain flat, and three will decline, including public construction the most, by 6 percent. Broad-based advances should occur in 2013 with growth likely in 23 of 24 industries, again led by housing starts at 32 percent. Public works construction is the lone industry expected to decline in 2013, by 2 percent.

Read the full article >>

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Orders, Production, Employment Up

Reprinted from Institute for Supply Management -- December 1, 2011

Economic activity in the manufacturing sector expanded in November for the 28th consecutive month, and the overall economy grew for the 30th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 52.7 percent, an increase of 1.9 percentage points from October's reading of 50.8 percent, indicating expansion in the manufacturing sector for the 28th consecutive month. The New Orders Index increased 4.3 percentage points from October to 56.7 percent, reflecting the second month of growth after three months of contraction. While the Prices Index, at 45 percent, increased 4 percentage points from the October reading of 41 percent, prices of raw materials continued to decrease (registering below 50 percent) for the second consecutive month. Respondents cite continuing concerns about the general economic environment, government regulations and European financial conditions, but are cautiously more optimistic about the next few months based on lower raw materials pricing and favorable levels of new orders."

 

Performance by Industry

Of the 18 manufacturing industries, eight are reporting growth in November, in the following order: Wood Products; Textile Mills; Petroleum & Coal Products; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Apparel, Leather & Allied Products; and Paper Products. The nine industries reporting contraction in November — listed in order — are: Miscellaneous Manufacturing; Nonmetallic Mineral Products; Plastics & Rubber Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Chemical Products; Fabricated Metal Products; Transportation Equipment; and Machinery.

Read the full story>>

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Durable Goods Orders Fell 0.7 Percent in October

Reprinted from Industrial Distribution -- November 23, 2011

U.S. business orders for long-lasting manufactured goods fell for a second straight month in October. While much of the weakness came from a big drop in demand for commercial aircraft, a key category that tracks business investment spending fell by the largest amount since January.

The Commerce Department reported Wednesday that orders for durable goods fell 0.7 percent following a September decline of 1.5 percent. Orders for core capital goods, considered a good proxy for business investment spending, dropped 1.8 percent, the biggest decline since a 4.8 percent fall in January.

Manufacturing has been one of the strongest sectors in the economy in this sub-par recovery, but this sector slowed this year as consumer demand faltered and auto factories had trouble getting parts following the March natural disasters in Japan.

The October drop in core capital goods, non-defense products excluding aircraft, was expected to be a temporary setback. This category has been surging this year, spurred by tax breaks that are allowing companies to write-off their investments all in one year as long as the purchases are made before the end of 2011. That has provoked a rush by companies to take advantage of this tax break which Congress passed in an effort to spur the sluggish economy.

For October, orders for transportation products fell 4.8 percent, reflecting a 16.4 percent drop in demand for commercial planes. Orders for autos showed a solid 6.2 percent increase, reflecting solid sales gains in recent months.

Excluding transportation, durable goods orders posted a 0.7 percent increase. This gain reflected increases in such areas as primary metals such as steel and heavy machinery.

The Institute for Supply Management's manufacturing index grew more slowly in October than September but still remained at a level indicating manufacturing is continuing to expand. Manufacturing, one of the first sectors to start growing after the recession officially ended in June 2009, has posted growth for 27 consecutive months, according to the ISM index.

The overall economy grew at a 2 percent rate in the July-September quarter, the Commerce Department said Tuesday, revising down its initial estimate of 2.5 percent growth. That was still a better performance than the 0.9 percent growth during the first six months of this year, the slowest activity in two years.

The revision in growth reflected even a bigger drop in inventories that initially estimated.

Analysts said that should set the stage for better growth of around 3 percent in the current October-November quarter as companies work to restock depleted shelves. Businesses had been caught by surprise by the stronger demand in the summer and that led to a reduction in their stockpiles.

U.S. automakers reported stronger sales in October, which should give a boost to manufacturing in future months. Sales are now back to the same pace as before the March earthquake in Japan, which had disrupted supplies and left many U.S. dealers with a shortage of popular Japanese models.

The Federal Reserve reported last week that factory production increased by a solid 0.5 percent in October, the fourth straight monthly gain. Overall industrial production, which includes output at utilities and the mining sector, was up 0.7 percent and has risen by 13.4 percent from its recession trough in June 2009. It remains 5.3 percent below its pre-recession peak reached in September 2007.

Factory activity slowed in the spring, reflecting the Japanese supply disruptions and a big spike in energy and food prices, which cut into consumer demand for other items. But in recent months, there have been signs of improving consumer and business demand.

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Conference Board Leading Economic Index 'Rebounds' in October

Reprinted from Modern Distribution Management - November 18, 2011

The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.9 percent in October, following a 0.1 percent increase in September and a 0.3 percent increase in August. The Coincident Economic Index (CEI) increased 0.2 percent, and the Lagging Economic Index increased 0.6 percent.

"The October rebound of the LEI – largely due to the sharp pick-up in housing permits – suggests that the risk of an economic downturn has receded," says Ataman Ozyildirim, economist at The Conference Board. "Improving consumer expectations, stock markets, and labor market indicators also contributed to this month’s gain in the LEI as did the continuing positive contributions from the interest rate spread. The CEI also rose somewhat, led by higher industrial production and employment."

The Conference Board LEI for the U.S. now stands at 117.4 (2004=100). In the six-month period ending October 2011, the leading economic index increased 3.0 percent (about a 6.1 percent annual rate), similar to the growth of 3.5 percent (about a 7.2 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators became slightly more widespread than the weaknesses over the past six months.

The Conference Board CEI for the U.S., a measure of current economic activity, rose to 103.5 in October, with all four indicators that make up the index increasing. The index rose 0.7 percent (about a 1.4 percent annual rate) between April 2011 and October 2011, about half as fast as the growth of 1.3 percent (about a 2.6 percent annual rate) for the previous six months.

In October, the lagging economic index increased more than the CEI, and the coincident-to-lagging ratio decreased, as a result. The Conference Board LAG for the U.S. stands at 110.9 (2004=100) in October, with three of the seven components advancing. Meanwhile, real GDP grew at a 2.5 percent annual rate in the third quarter of 2011, following an increase of 1.3 percent annual rate in the second quarter.

"The LEI is pointing to continued growth this winter, possibly even gaining a little momentum by spring," says Ken Goldstein, economist at The Conference Board. "The lack of confidence has been the biggest obstacle in generating forward momentum, domestically or globally. As long as it lasts, there is a glimmer of hope."

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Purchasing Managers Index Declines 0.8 points in October

Reprinted from Institute for Supply Management - November 1, 2011

Economic activity in the manufacturing sector expanded in October for the 27th consecutive month, and the overall economy grew for the 29th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 50.8 percent, a decrease of 0.8 percentage point from September's reading of 51.6 percent, indicating expansion in the manufacturing sector for the 27th consecutive month. The New Orders Index increased 2.8 percentage points from September to 52.4 percent, indicating a return to growth after three months of contraction. The Prices Index, at 41 percent, dropped 15 percentage points, and is below the 50 percent mark for the first time since May 2009 when it registered 43.5 percent. Inventories decreased to 46.7 percent, which is 5.3 percentage points below the September reading of 52 percent. Comments from respondents are mixed, indicating positive relief from raw materials pricing and continuing strength in a few industries, but there is also more concern and caution about growth in this uncertain economy."

Read the full report.

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Manufacturing Expanding, but Outlook Uncertain

Purchasing managers report growth, but unemployment, political uncertainty weigh.

Reprinted from Institute for Supply Management - October 3, 2011

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in September for the 26th consecutive month, and the overall economy grew for the 28th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 51.6 percent, an increase of 1 percentage point from August, indicating expansion in the manufacturing sector for the 26th consecutive month, at a slightly higher rate. The Production Index registered 51.2 percent, indicating a return to growth after contracting in August for the first time since May of 2009. The New Orders Index remained unchanged from August at 49.6 percent, indicating contraction for the third consecutive month. The Backlog of Orders Index decreased 4.5 percentage points to 41.5 percent, contracting for the fourth consecutive month and reaching its lowest level since April 2009, when it registered 40.5 percent. Comments from respondents generally reflect concern over the sluggish economy, political and policy uncertainty in Washington, and forecasts of ongoing high unemployment that will continue to put pressure on demand for manufactured products."

PERFORMANCE BY INDUSTRY

Of the 18 manufacturing industries, 12 are reporting growth in September, in the following order: Wood Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; Plastics & Rubber Products; Printing & Related Support Activities; Chemical Products; and Computer & Electronic Products. The six industries reporting contraction in September — listed in order — are: Primary Metals; Textile Mills; Furniture & Related Products; Fabricated Metal Products; Paper Products; and Electrical Equipment, Appliances & Components.

WHAT RESPONDENTS ARE SAYING ...

• "The economy continues to be a drag on our business outlook. We are trying to deal with new and additional FDA regulations which are costing significant dollars. It is hard to recoup any of these additional costs in our pricing levels without losing significant sales volumes." (Chemical Products)
• "Market is cautious, but still steady." (Electrical Equipment, Appliances & Components)
• "Global demand for semiconductors is down and maybe not yet 'bottomed out.' Inventory reduction activities are a priority." (Computer & Electronic Products)
• "Still strong automotive demand." (Fabricated Metal Products)
• "Orders remain consistent and steady — no sign of lower demand." (Paper Products)
• "Japan supply chain issues are over, but exchange rates and raw material prices are hurting our profit." (Transportation Equipment)
• "We sense a weakening in demand, but it is not extreme at this point." (Plastics & Rubber Products)
• "Overall, business is improving with a measurable uptick in orders this month. Part of that is due to pre-holiday season orders." (Miscellaneous Manufacturing)
• "Business continues to be sluggish." (Furniture & Related Products)

Read the full article...

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Machinery Orders Spike Higher

Higher demand for sheet metals may point to manufacturing rise

Reprinted from MyPurchasingCenter.com - September 30, 2011

A spike in new machinery orders so far in 2011 is supporting demand for flat rolled steel such as hot rolled, cold rolled, and galvanized sheet, as well as discrete plate. This current activity is set to support manufacturing activity even though some recent leading indicators noted a recent slowing.

The August PMI report from the Institute of Supply Management and the regional Federal Reserve manufacturing surveys noted weak levels of new orders and order backlogs for manufacturing as a whole. However, the current level of order backlogs in machinery continues to increase.

The July factory goods report from the Census noted overall new orders, excluding aircraft, up 2.8% from June and 10% higher than last July as order backlogs keep increasing. The real story is steel-intensive machinery.

Machinery remains strong as backlogs are 34% higher than last July. Construction machinery led the way with new orders 45% higher YTD (year-to-date) and order backlogs 53% higher than last July. Turbines and power generation equipment has a 33% YTD gain in new orders with backlogs 65% higher than last July. Mining, oil field, and gas field machinery has YTD new orders up 28% from 2010 as order backlogs in July are 63% higher than last July. he rest of the machinery categories look good as these increased levels of order backlogs will continue to stimulate steel demand going forward.

Solid production levels in machinery along with strengthening automotive production should support steel demand over the next few months, along with a weak dollar assisting export demand. If economic growth truly turns lower into the end of the year as global PMI and consumer confidence surveys indicate, manufacturing could soon slow.

One caveat: The optimistic durable goods-factory goods report was for July, a time before confidence evaporated. August economic data, released throughout September, will likely show some affect from the recent market turmoil, though plate and flat rolled steel remains supported by new machinery orders.

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Wholesale Prices Unchanged in August

Reprinted from Bloomberg - September 14, 2011

Wholesale prices in the U.S. were little changed in August as costs decreased for energy and automobiles.

The producer price index was unchanged after a 0.2 percent increase in July, Labor Department figures showed today in Washington. Economists projected no change, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy, rose 0.1 percent, less than forecast.

Slowing growth overseas and in the U.S. is helping restrain raw-material costs, underscoring Federal Reserve Chairman Ben S. Bernanke view that price gains are "transitory." Cooling prices make it easier for policy makers to take additional steps when they meet next week to keep the economy expanding.

"Inflation is cooling and that will provide some relief for consumers," said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected no change in August producer prices. "With inflation seeming to crest, it gives the Fed a freer hand."

Retail sales in August unexpectedly stagnated as a lack of jobs restrained shoppers, highlighting the risk the economy will stall. The unchanged reading followed a 0.3 percent gain for July that was smaller than previously estimated, Commerce Department figures showed in Washington.

Index Futures

Stock-index futures trimmed gains after the reports. The contract on the Standard & Poor's 500 Index expiring in December rose 0.8 percent to 1,174.6 at 8:45 a.m. in New York after rallying as much as 1.2 percent earlier.

The median estimate for producer prices was based on forecasts from 77 economists. Projections ranged from declines of 0.6 percent to increases of 0.9 percent.

Compared with August 2010, companies paid 6.5 percent more for goods last month, the smallest gain since April, after a 7.2 percent rise in July.

Wholesale prices excluding volatile food and energy costs, were projected to rise 0.2 percent from the prior month, the Bloomberg survey showed. Core wholesale prices climbed 2.5 percent in the 12 months ended in August.

Read the full article

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CEOs Want Integrated Supply Chains

Reprinted from My Purchasing Center - August 7, 2011

Sourcing's goal isn't to be functionally excellent, says David Butler, Managing Director, Philips Home Health Solutions International Operations/Senior Director Philips-HHS Global Sourcing, Rather, it's "to help the business succeed and drive sourcing strategies that enable us to do that."

Butler was one of three speakers who presented during a live webcast on What CEOs Expect of Purchasing held recently at My Purchasing Center. Presenting alongside with him were Phil Krotz, Director of Supply Chain Services at Rockwell Collins, and Bill Michels, CEO at ADR North America.

Philips HHS is a medical device manufacturer with more than 20% of its revenue derived from products released within the past two years, and most of what Butler's team sources (printed circuit board assemblies, molded plastics, motors and valves and textiles) is custom made. Its focus is to integrate sourcing with the company's commercialization function and supply base.

"Increasingly, we see that management expects from us that suppliers need to do more than provide parts," Butler said. "Management understands that the company can't drive all the innovation within our own four walls. They really look to us to bring suppliers to the table that can enable innovation."

He referred to one instance in which sourcing managed two suppliers that modified their technology roadmaps in response to Philips HHS's product requirements. "We were able to guide where they were going with their technologies," he said. "Ultimately, the products are more optimal when we launch them. That's our objective."

Rockwell Collins is an aviation electronics and communications company. The challenge for the sourcing operation there, said Phil Krotz, is product life cycle support. Many of the company's products which are purchased by Boeing, Airbus and government customers are in the field for 20 years or longer, and customers expect continued ongoing service and support during that time.

Krotz said that management looks to sourcing at Rockwell Collins for cost reductions to increase margins; efficiencies through enterprise agreements and ongoing commodity or category management.

"We're working with suppliers daily to improve performance, eliminate waste through lean principles and ultimately become their customer of choice," he said.

Management also expects sourcing to meet small business goals of the company's customers and to identify and mitigate supply chain risks.

Having collaborative relationships with suppliers benefits Rockwell Collins with improved performance. "By aligning our business with those top suppliers that are performing allows us not only to drive cost reductions, it also makes us more efficient in our factory and improves our ability to delight our customers by delivering on time and with high quality," Krotz said.

ADR's Bill Michels wrapped up the event by sharing insight he's gained through his work with CEOs and CPOs.

"CEOs are looking for procurement teams to align procurement strategy with the corporate strategic plan," he said. "They're looking for integrated, lean supply chains and highly competitive supply chains to support the business strategy. And, to do this, CEOs are looking to procurement to recruit talent with critical business skills."

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Lean manufacturing in the spotlight - theory put into practice

Reprinted from Manufacturing and Logistics IT - August 13, 2011

The Lean Factory Group*, a consortium of seven suppliers to the manufacturing sector, provides manufacturers with hands-on advice and guidance on a range of innovative, yet practical lean manufacturing solutions to boost productivity.

A demonstration manufacturing cell, set-up within SSI Schaefer's headquarters, gave delegates the unique opportunity to see how an efficient working production line should look and run. The cell, created using the very latest developments in lean manufacturing technology, provides a highly effective, practical and visual way of educating manufacturers to the benefits of lean implementation.

Mark Dash, Solutions Manager, Bosch Rexroth, said: "Lean manufacturing is ultimately about adding value to the end customer and removing waste from a production line. However, removing waste from a production line is easier said than done and to really understand what waste is, manufacturers need to understand what adds value – what the end customer will pay for."

He continued: "The workshops aim to dispel the myths surrounding lean manufacturing and the complications often associated with 'change' when introducing lean methods to an existing set-up."

Top and tailed with a number of presentations on the theory and benefits of lean manufacturing, including value stream mapping, KANBAN boards and workplace design, it was the practical session within the production cell that gave visitors the chance to compare their own production plant and really examine the operation behind a lean manufacturing cell.

The cell clearly highlighted the actions that add value within a production line and gave food for thought to current actions across a host of production lines throughout the country that are clearly wasted and adding no value to the customer – actions including wasted travel across the shopfloor, long periods of waiting around by production staff, over-production and over-processing.

Aaron Thornton, Business Development Manager, SSI Schaefer, said: "Every warehouse manager, production line manager is looking for ways to maximise efficiency and improve productivity levels whilst driving costs down. However, all too often there is a lack of time or resources to justify the changes needed to develop a streamlined, picture-perfect solution to achieving such gains.

"The integrated approach of the Lean Manufacturing Group brings together a wealth of disciplines, experience and expertise needed to devise and implement tailored, practical and efficient lean manufacturing solutions to help manufacturers improve their efficiency, competitive position and profitability – primarily it's about working with people, upskilling workforces and providing them with the knowledge to move forward with their own lean journey."

*The Lean Factory Group UK is made up of seven of the most innovative suppliers to the manufacturing sector - iCart, Bosch Power Tools, Bosch Rexroth, K.Hartwell, Sick UK, SSI Schaefer and Spitfire Consultancy.

Read Full Article

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Purchasing Managers See Continued Growth

New orders, production and employment up in June

Reprinted from Institute for Supply Managemnet - July 8, 2011

Economic activity in the manufacturing sector expanded in June for the 23rd consecutive month, and the overall economy grew for the 25th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 55.3 percent, an increase of 1.8 percentage points from May, indicating expansion in the manufacturing sector for the 23rd consecutive month. New orders and production were both modestly up from last month, and employment showed continued strength with an increase of 1.7 percentage points to 59.9 percent. The rate of increase in prices slowed for the second consecutive month, dropping 8.5 percentage points in June to 68 percent. This follows a similar reduction of 9 percentage points in the Prices Index in May, and is the lowest figure since August 2010 when the index registered 61.5 percent. While the rate of price increases has slowed and the list of commodities up in price has shortened, commodity and input prices continue to be a concern across several industries."

Performance by Industry

Of the 18 manufacturing industries, 12 are reporting growth in June, in the following order: Miscellaneous Manufacturing; Printing & Related Support Activities; Computer & Electronic Products; Paper Products; Textile Mills; Petroleum & Coal Products; Nonmetallic Mineral Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; Machinery; and Electrical Equipment, Appliances & Components. The five industries reporting contraction in June are: Plastics & Rubber Products; Apparel, Leather & Allied Products; Primary Metals; Wood Products; and Food, Beverage & Tobacco Products.

What Respondents are Saying...

• "We continue to see inflation, though at a reduced rate [compared] to earlier months." (Chemical Products)
• "Slight slowdown in overall business in both domestic and international markets, although still above 2010 at the same time." (Electrical Equipment, Appliances & Components)
• "The earthquake and related issues in Japan have caused shortages of some automotive equipment, negatively impacting global automotive production." (Fabricated Metal Products)
• "Sales continue to be stronger than expected across both retail and industrial channels. Material costs are definitely rising and will force increases to end-use customers." (Paper Products)
• "High commodity prices continue to be worrisome." (Food, Beverage & Tobacco Products)
• "Business is still up and down, with no real upside potential for us until the housing market rebounds." (Furniture & Related Products)
• "Customers are still being cautious with their buying. Certain plastics and metal prices continue to rise." (Machinery)

 

Read Full Report

 

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Wholesale Prices Up 0.2% in May

Wholesale prices rose 0.2 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported.

Reprinted from Modern Distribution Management - June 14, 2011

This advance followed increases of 0.8 percent in April and 0.7 percent in March. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.9 percent in May, and the crude goods index declined 4.1 percent. On an unadjusted basis, prices for finished goods moved up 7.3 percent for the 12 months ended May 2011, the largest year-over-year gain since an 8.8-percent advance in September 2008.

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RFID Technology Determines When Coveralls Used in Cleanrooms Must Be Cleaned, Repaired or Replaced

Reprinted from RFID Journal - May 25, 2011

When MSR-FSR began offering laundry services for clean-room coveralls at its facilities in Albuquerque, N.M., and Hillsboro, Ore., it needed to maintain a precise account of each item coming through its two sites. By managing data regarding which items are washed or repaired – and how often that occurs – MSR-FSR and its customers (nearby semiconductor companies) are afforded a record proving when and how the items were cleaned, as well as when they may need to be repaired or replaced. To manage that information, the firm is employing an RFID-enabled solution provided by a laundry, linen and uniform cleaning system company.

Clean rooms are enclosed environments for manufacturing or scientific research in which the level of contamination – such as dust, airborne microbes and other particles or vapors – is closely restricted and monitored. Because street clothes may contain contaminants, clean-room workers must wear special coveralls, and sometimes aprons or smocks, all of which must be laundered according to regulated standards.

Read Full Article

 

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New Orders, Production, Employment and Inventories Growing

Reprinted from Institute of Supply Management

PMI at 60.4%
Supplier Deliveries Slower

Economic activity in the manufacturing sector expanded in April for the 21st consecutive month, and the overall economy grew for the 23rd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "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."

Continued...

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Price Increases Don't Appear to Be Going Away Anytime Soon

Reprinted from Modern Distribution Management

Economic recovery intact - Index posts 16th straight month of year-over-year growth On track for a good, but not great, GDP release for Q1 2011

If the latest earnings releases for the first quarter are any indication, distributors will continue to face price increases through the end of this year thanks to ongoing volatility in raw material costs.

Many suppliers instituted raw material surcharges and/or price increases to offset the cost jumps in the first quarter. Some noted that they continue to improve efficiencies internally to improve profitability, as well.

In March, wholesale prices had risen 0.7 percent, according to the Producer Price Index from the Bureau of Labor Statistics. The increase followed price hikes in January and February. One contributor to the spike: the price of crude oil due to uncertainty in the Mideast. Rubber products, for one, have seen double-digit increases, according to some distributors. Distributors continue to look for ways to offset the price increases they are seeing from their supplier.

Concerns are broad-based among manufacturers and many say they plan to continue increasing prices to offset raw material increases. In one survey of CFOs and senior comptrollers by Grant Thornton LLP, manufacturing respondents said that while they are optimistic about the U.S. economy, they are worried about inflation. Half said they planned to raise prices for their goods, up from 31 percent half a year ago. Just a quarter said the same a year ago.

Manufacturers commented on the impact of cost increases in their recent earnings releases and calls. Wausau Paper, a manufacturer of specialty papers for industrial, commercial and consumer end markets, said input costs had accelerated more rapidly than anticipated. Electrical manufacturer Hubbell Inc. reported "commodity cost headwinds" in the quarter, reducing operating margins by about 1 percentage point. The manufacturer announced broad price increases in the first quarter to offset these costs.

Raw material prices have been "chipping away" at 3M's margins, according to CEO George Buckley in 3M's first-quarter 2011 earnings call. Gross margins declined by 1 point year-on-year, according to 3M CFO David Meline in the same call: "Selling prices rose slightly in the first quarter, but importantly, they improved each month during the quarter as our businesses have stepped up aggressively to help to offset raw material headwinds."

In the latest MDM/Baird benchmarking survey (read results), distributors and manufacturers noted "significant price inflation" in many sectors. One industrial respondent said: "This year we are seeing more double-digit price increases trying to go through than ever before."

A gases/hardgoods respondent said he expected "substantial price increases" effective in April. Hardgoods price increases were frequent, one wrote, especially on filler metals. In building products, a respondent said it was difficult to pass through the cost inflation the company was seeing.

It appears that the price increases expected by many survey respondents in the fourth quarter came to fruition in the first quarter. At that time, many respondents said they had planned to pass on the price increases, or pass part of the increase on. But others planned to just eat the extra costs.

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Pulse of Commerce Index Jumps 2.7% in March

Reprinted from Ceridian-UCLA

Economic recovery intact - Index posts 16th straight month of year-over-year growth On track for a good, but not great, GDP release for Q1 2011

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, rose 2.7% on a seasonally and workday adjusted basis in March, more than offsetting the 0.3% decline in January and the 1.5% decline in February. On a quarter over quarter basis, the PCI is up 3.9% at an annualized rate, a welcome acceleration from the relatively weak growth of the PCI experienced in the second half of 2010.

"The PCI growth of 3.9% for the first quarter of 2011 is a middle-of the-road number, signaling that we are not in either one of the extremes. In other words, the recession is over, but we are not yet experiencing a robust recovery," said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. "This means that for the coming quarter, the PCI is expecting GDP growth close to historically normal levels of around 3% and normal increases in payroll jobs at approximately 150,000 per month. The unemployment rate is likely to hold stubbornly to its current level but could be driven down by discouraged workers dropping out of the labor force."

"We are more optimistic than last month, but are still targeting GDP growth of 3% for the first quarter of 2011, which remains at the low end of the range of expectations," continued Leamer. "The outlook remains consistent with the PCI’s view of the fundamental health of the US economy over the past four months."

Over time, the PCI has shown a substantial correlation with Industrial Production. Last month, the PCI correctly suggested Industrial Production for February would come in flat to slightly down at .02%. The strong March PCI suggests a 0.8% gain in industrial production for March when that data are released by the Federal Reserve on April 15.

"March represents the sixteenth consecutive month of year-over-year growth in the index," explained Craig Manson, senior vice president and index expert for Ceridian. "This is particularly encouraging because the first six months of last year were strong, and the index posted solid growth despite the difficult year-over-year comparison. Continuation of this trend is welcome news, because like the overall economy, the PCI has been growing since it first turned positive in December of 2009."

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Record Year for Procurement Outsourcing

Reprinted from SupplyManagement.com
by Lindsay Clark

Procurement outsourcing had a record year in 2010, a report from the Everest Group has found.

The research firm’s survey of the procurement outsourcing market found new contract signings and extensions reached an unprecedented level last year. Meanwhile, annual contract values grew 13 per cent to reach $1.3 billion (£792 million) in 2010. And cumulative total contract value (TCV) for existing and new engagements hit $9 billion - an increase of 15 percent from 2009.

Everest vice president Saurabh Gupta, said: "We continue to see an increase in sourcing-focused contracts, driven by the need to generate quick savings, and we expect to see these contracts expand into transactional services to ensure compliance and sustainability of savings."

Everest forecast that annual contract values for procurement outsourcing would grow to $1.5 billion (£914 million) in 2011, up 15-20 percent on 2010. Consumer goods firms, retailers and manufacturing companies are expected to continue to lead the outsourcing trend, while financial services, high tech industries and telecoms are expected to see significant increases too.

The report highlights a number of prominent procurement outsourcing deals including:

• Doosan Infracore Construction Equipment's tie up with ICG Commerce
• BlueScope Steel’s contract with Capgemini
• General Electric’s deal with Genpact

Supply Chain News: A Picture Tells the Sad but True Tale, as Commodity Prices Continue Strong March

 

Huge Year over Year Prices Increases Virtually Across the Board; Widespread Warnings on Profits Across Sectors - and Maybe More Global Unrest Over Rising Food Prices

 

Reprinted from Supply Chain Digest
SCDigest Editorial Staff

Rising input prices from energy to agriculture are causing deep concern across business, political and economic circles, as commodity cost pressure are impacting corporate bottom lines, threaten to derail the nascent economic recovery, and are causing social turmoil in many parts of the globe.

Just this week, for example, the Chinese steel association said that the cost to produce steel was up almost 20% in 2010, due to rising prices for iron ore and other raw materials. Despite a growth in sales of 9.6%, selling prices were up just 15.7%, much less than production cost growth, leading to net profitability for the industry of just 2.91% in what is a pretty healthy demand market.

The Department of Agriculture announced last week that the prices for corn, wheat and soybeans might surge even further in the second half of 2011, due mostly to anticipated supply bottlenecks.

Floor materials manufacturing Armstrong Industries recently blamed a weak Q4 profit lumber on a $20 million increase in the cost of lumber.

In the consumer packaged goods, almost every company has been sounding the alarm at their Q4 earnings calls, warning of the impact of rising costs on 2011 profits and declaring their intent to raise prices - through their ability to push those price increases through to retail remains to be seen.

Two weeks ago, Kraft Foods lowered its 2011 earnings growth forecast in the face of what CEO Irene Rosenfeld called “significant input cost inflation and persistent consumer weakness in many markets." Kraft said it saw $489 million in additional input costs during its fourth quarter, and that it was expecting year-on-year inflation in its costs to be in the high single digits.

Prior to that, PepsiCo CFO Hugh Johnson forecast an input cost inflation range for 2011 of 8-9.5%, equivalent to an additional $1.4-1.6 billion in costs. "There aren’t many years in my 23 years at PepsiCo that I remember seeing that range,” Johnson said.

Similar outlooks have recently been offered by General Mills, Unilever, and many other consumer package goods companies.

Apparel companies are also getting hammered, with the costs of both cotton and fuel soaring. Many soft goods companies air freight goods produced in Asia to the US market to improve responsiveness, making them sensitive to jet fuel costs. Nike, Jones Apparel Group, and VF Corp. are among the major apparel manufactures that have warned of margin pressures due to input cost increases.

Of course, the impact of rising underlying commodity cost pressures ripple through many levels of the supply chain. Rising iron ore costs lead to rising prices from steel producers that then impact appliance and automotive manufacturers. Rising oil prices not only raise fuel costs but the cost for plastics and other materials that have a petroleum base.

With that said, below is a chart that shows year over year price changes as of yesterday for a number of key commodity items across energy, metals, and agricultural products.

As can be seen, only natural gas, with a drop of 13%, has seen a year over year decrease in costs. Every other commodity has seen at least double digit price increases, with palladium, cotton, coffee and silver all seeing price gains of over 100% in just 12 months.

Corn, wheat and soybeans are all up more than 50% in the past year.

While most of these increases come off very low levels that we were reach in 2009 and we slow to recover into early 2010, budgets and selling prices had also adjusted to that "new normal," meaning the cost increases still raise havoc on profit margins.

But there are many other impacts of rising commodity prices beyond corporate profitability.

Rising food prices were thought to be a key factor in the recent protests and in North Africa and the Middle East. Since high food prices impact the poor disproportionately, protests are spreading to a wider variety of nations.

While historically such commodity price surges have almost always led to a reversal, as companies and individuals take steps to reduce demand and providers increase output to take advantage of higher prices, ultimately leading to excess supply, the change in the tide may not happen quickly.

For example, the Department of Agriculture announced last week that the prices for corn, wheat and soybeans might surgeeven further in the second half of 2011, due mostly to anticipated supply bottlenecks. Despite higher plantings for corn and soybeans this spring, the supply is expected to remain tight due to strong export demand and rising biofuel demand.

 

Contracting MRO Services Could Mean Trading Control for Cost Benefits

Reprinted from PlantServices.com
by Mike Bacidore

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Industrial Production Sees Biggest Gain In Five Months

Reprinted from Industrial Distribution magazine
by Jeannine Aversa

 

Industrial production rose in December by the largest amount in five months, providing the economy with solid momentum heading into the new year.

Activity at the nation's factories, mines and utilities increased 0.8 percent last month, the Federal Reserve said Friday. Industrial production was up in every month but one in 2010.

Overall industrial activity has risen 11 percent since hitting its recession low in June 2009. But it is still 6 percent below its peak reached in September 2007.

Factory production, the biggest slice of industrial output, rose 0.4 percent, the sixth straight monthly increase. Makers of computers and electronic products, clothing and leather, chemicals and other products were among the industries seeing gains. But auto production dipped.

"Manufacturing looks like it is doing its job and moving the economy ahead," said John Silvia, chief economist at Wells Fargo.

Other economic reports showed:

• Retail sales rose for a sixth consecutive month in December, the Commerce Department said. Sales are 13.5 percent above the recession low hit in December 2008.
• Consumer prices rose 0.5 percent last month, the largest increase in 18 months and a reflection of rising gas prices, the Labor Department said. But outside of energy costs, there was little sign of widespread inflation. Core inflation, which strips out volatile energy and food, was up just 0.1 percent in December.
• U.S. businesses added to their inventories for an 11th consecutive month in November as sales posted another strong increase, Commerce said.

Rising factory production has played a crucial role in lifting the economy out of the recession.

Factories started producing more as U.S. companies placed more orders to replenish stockpiles that they slashed during the downturn. Then in the final months of 2010, consumers and businesses showed a bigger appetite to spend, encouraged in part by the improving economy.

A recovering global economy, meanwhile, also is helping. Sales of U.S. exports to foreign countries has been a key force supporting U.S. economic growth.

Stronger U.S. factory production, however, has only recently led to more hiring at factories.

Employment in manufacturing grew by 10,000 in December, the first increase since July. Factory workers' hours stayed the same last month, as did their overtime.

Friday's report also showed that production at gas and electric utilities rose 4.3 percent in December, marking the second straight monthly gain. Unusually cold weather boosted demand for heating. Output at mines rose 0.4 percent, after dipping in November.

For all of 2010, industrial production dipped only once — in October. The decline happened only because unseasonably warm weather led to a sharp drop at utilities.

The percentage of factory space used for production and other industrial capacity in use last month rose to 76 percent.

It dropped to a recession low of 68.1 percent in June 2009, the final month of the downturn. When activity is booming, as it was in the late 1990s, industrial companies ideally use about 80 percent of their capacity. If it gets much higher, it signals concerns about inflation because it means demand for goods is rising faster than companies can produce.

At the current level of 76 percent, economists said there is still slack in the economy.

The Fed's expectation that inflation won't be a problem this year gives the central bank leeway to stick with its $600 billion bond-buying program to invigorate spending and economic activity.

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Stop the Presses: Freight Rates to Rise in 2011

Reprinted from SupplyChainBrain.com
By Robert J. Bowman

Readers of a certain age might recall this prediction from comedian George Carlin’s Hippy Dippy Weatherman: “Weather forecast for tonight: dark. Continued dark overnight, with widely scattering light by morning.” In the spirit of the late, great Carlin, I offer a prediction for freight rates in 2011: up.

Trust me, I’ve got experts who will back me on this.

If you want to know how much more shippers are going to pay, however, my crystal ball gets a bit cloudy. So we turn to John Haber, executive vice president for transportation spend management with NPI, a company that specializes in evaluating transportation and technology purchases. Let’s take it one mode at a time.

Parcel. We start here because Haber believes this is the most problematic sector for shippers in 2011. And the reason has nothing to do with rising fuel prices, constricting capacity or any of the other usual economic drivers. It’s because UPS and FedEx, the two behemoths who control the national parcel market, are simultaneously altering their dimensional rate factor. The DIM factor takes into account both the weight and size of a package, so that lightweight, bulky items don’t get an unfair break on rates. Under the old formula, you divided the cubic size of a domestic ground or air package by 194 to determine its dimensional weight in pounds. As of January 3 of this year, the dividing number was changed to 166. The net result, says Haber, will be an increase of between 13 and 30 percent in package shipping costs over 2010. On top of that, both major carriers are raising rates between 3 and 9 percent, depending on the distance carried.

What can shippers do about it? Not a whole lot. There are a number of regional parcel carriers that offer a lower-cost service, but they’re not in every market, and they lack the national networks that distinguish UPS and FedEx. So for the most part, if you can’t pass it on to your customers, get ready to eat the increase.

Ocean. This is the area that has given shippers the most headaches in recent years. Following a period of steep discounting of ocean container rates, they were hit with whopping increases by profit-starved carriers in 2010, right in the middle of valid service contracts. And the carriers, who point to lagging volumes in the latter half of 2010, are seeking similar rises this year. The Transpacific Stabilization Agreement is recommending that its members impose increases of $400 per 40-foot container for cargo moving from Asia to U.S. West Coast ports, and $600 for all other destinations.

Whether the latest round of increases will stick is another matter. Capacity levels are up in the major trades, even though carriers continue to lay up most of the ships that they took off line in the trough of the recession. “It’s really hard to tell what’s going to happen,” Haber says. Much depends on the state of the U.S. economy coming out of the first quarter. Nevertheless, he believes shippers won’t see the huge increases that they experienced in 2010. Things should get even tougher for carriers in the 2013-2014 period, when they are expected to add massive amounts of new capacity in expectation of the opening of a third set of locks at the Panama Canal.

Truckload. Look for “pretty significant price increases” in this sector, as carriers struggle to recover from their financial implosion of 2008-2009, caused by soaring fuel prices, overcapacity and steep discounting. A lot of trucking companies went out of business, taking with them vehicles that won’t be returning to the market anytime soon. And new regulations on truck safety could take between 5 and 8 percent of the current driver workforce out of the market, Haber says. Add to that the expectation of a new fuel-price spike – London-based Sanford C. Bernstein & Co. has predicted a level of $90 a barrel for 2011, while others say the price could top $100 – and you have a scenario in which truckers must raise their rates in order to survive.

Less-than-truckload. “It’s going to be tough as well,” says Haber. Last year saw a couple of rate increases, even as industry revenues continued to slump. The biggest wild card, of course, is the struggling LTL giant YRC Worldwide, which is burdened by huge operating costs, including a hefty union contract. The International Brotherhood of Teamsters has made a number of concessions, as well as given the company more time to raise money and reduce its debt, but the jury is out on whether the deal is enough. “This is the make-or-break year for YRC,” Haber says. If the company goes under, expect a sudden drop in capacity and a spike in LTL rates.

Rail/intermodal. In the world of commercial transportation, this is one of the few success stories of recent years. Shippers are flocking to intermodal as a cheaper alternative to truckload transport. Service quality has improved dramatically over the past few years. And rail stocks are among analysts’ top picks of 2011, a situation that would have seemed inconceivable a decade or two ago. Credit Warren Buffett, with his “all-in” bet on Burlington Northern Santa Fe Corp., for seeing rail’s fresh potential as a profitable investment.

That’s all good news for the railroad business, but what does it mean for shippers? Higher rates, of course. Haber says increases up to now have been “pretty significant,” although not as much as those in parcel and truckload. Expect that trend to continue, as railroads exploit their newfound respect in the shipper community.

Airfreight. It looks as though some excess capacity will be appearing after the Chinese New Year, thanks to high inventory levels all round. Shippers relying on air freight have replenished their stocks from extremely low levels over the past year or so. The availability of extra space should help to hold down price increases in 2011. “The environment looks more attractive than last year, when we saw double-digit increases,” Haber says.

It doesn’t take a comedian to predict that manufacturers, retailers and consumers will all feel the pinch of higher rates this year. That’s supposed to be a good sign for the economy, because it signifies a resurgence of consumer demand and spending. All we need now is actual recovery, in the form of more jobs, to match it. And that’s as tough to predict as the weather.