Strategic Sourcing A Key Factor in ISM Economic Outlook for 2012

by Taras Berezowsky on December 7, 2011

Style:    Category: Macroeconomics, Sourcing Strategies

The Institute for Supply Management (ISM) has come out with its economic outlook for 2012, and it echoes much of what we’ve been reporting on manufacturing: that 2012’s steady-yet-not-barnburning economic growth prospects may well represent a “calm before the storm. (That storm could come in the form of another mini-recession in 2013, according to some analysts.)

Overall, purchasing and supply management executives from all over the country “expect a 5.5 percent net increase in overall revenues for 2012, compared to a 7 percent increase reported for 2011 over 2010 revenues. Looking forward to 2012, 39 percent are predicting overall improvement as compared to 2011 — although 53 percent think things will remain the same. (Both primary metals and fabricated metal products sectors expect improvement.) In general, the non-manufacturers’ outlook looks less positive.

Other signs pointing to a potential “calm-before-the-storm situation:

  • Capex increased 11 percent in 2011, but is expected to increase by 5.6 percent in 2012
  • Exports should grow — but so should imports
  • Raw materials prices are expected to keep rising
  • Capacity utilization is at 79.2 percent, down from 83.2 percent last April

Here is what respondents said when asked what the single most important problem is that their businesses face in 2012:

  • Poor sales (43.9%)
  • Government regulations (22%)
  • Inflation (17.4%)
  • Cost of labor (4.5%)
  • Quality of labor (4.5%)
  • Taxes (4.5%)
  • Interest rates and finance (3%)

Poor sales come from poor demand; poor demand comes from less buying power, which comes from higher inflation, higher unemployment, and higher taxation¦you get the idea. Most of the issues above are interrelated.

Perhaps the most interesting finding from a sourcing perspective is what supply chain managers and executives plan to do to keep their companies running in this steady-but-not-stellar growth environment. Hearteningly, 74 percent of the manufacturing respondents said they “plan to take steps in 2012 to “improve their supply chain management practices. Here are five most-mentioned approaches in manufacturing:

  • Supplier performance management
  • Strategic sourcing/supply base rationalization
  • Demand planning to reduce supply lead times
  • Inventory management and control
  • Process and information systems improvements

And the five most-cited responses in the non-manufacturing sector:

  • Supply management/process improvement
  • Leverage new and existing technology
  • Contract management
  • Professional development
  • Strategic sourcing

Fascinating. All of these are areas that MetalMiner has covered in the past — just do a search on the site. Oh, and our sister site, Spend Matters, may just know a thing or two about them as well¦

–Taras Berezowsky

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