Supplier Management Watch: Is Manufacturing in Recovery – or Not?

If you believe the recent ISM manufacturing numbers, which Pat Furey recently highlighted over on Supply Excellence, it appears that the worst might be behind us in the manufacturing sector (except for full-time job seekers, that is). Pat notes, among other things, that the index continues to show a slight rise in overall activity, showing "the 4th consecutive month above 50," despite a modest decline from October's numbers. And new orders jumped above 60, which "means that production will have to increase in the following months to close the gap between bookings and inventory levels." But the employment portion of the index declined to near-contraction territory, hitting 50.8 and providing fuel to the fire for the suggestion that we're in a jobless recovery. From a manufacturing Spend Management perspective, how should we read into these numbers?

I think there are a few observations worth making. First, and perhaps most important, even if we are in a sustained recovery, suppliers are going to be as stingy with opening up new capacity as we are with hiring new workers. In other words, don't expect suppliers to bring mothballed capacity back online until it's absolutely needed and profitable (which will probably be after their customers need it). If you're not working with suppliers closely and are sure of the quality of your relationships relative to others a supplier might have, then it might be important to start to develop back-up plans for any demand surges that might be coming down the pike. Translation: if you’ve taken out the proverbial hammer from a reverse-auction standpoint of late or generally ask for year-over-year price reductions without developing a supplier, looking for joint areas of cost take-out, then chances are you won't be their first choice when it comes to providing materials or services in a capacity-constrained situation.

This same thinking also carries over to commodity markets as well, many of which could be slow to bring capacity back online. Until there are true signs of a long-term recovery, commodity availability across a range of categories could be materially constrained in the early parts of a recovery. The same could also be true from a talent-management standpoint when it comes to contingent workers. While it's unlikely that your organization will ramp up full-time hiring aggressively in the early stages of recovery, they'll no doubt look to add to their contingent workforce, in both production and non-production areas. Just as commodities will be at a premium, so too will contingent talent. If you don't have the right platform in place to manage contingent hiring -– not to mention the right combination of strategic and administrative services to absorb new capacity requirements -– then you could very well find yourself getting fewer resumes (and the wrong ones) for positions that your organization needed to fill yesterday, not to mention paying above the benchmark hourly rate.

- Jason Busch