Few economic reports are as influential as the Institute of Supply Management's monthly report on manufacturing. Norbert Ore not only produces the report but tells us what it all means.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Of the mountains of economic data sliced and diced each month, very little has the durability, credibility, or market-moving influence of the Institute of Supply Management's (ISM) Manufacturing Report on Business. Published continuously since 1931—save for the four years during World War II—the monthly report dissects trends across 18 industries through 11 indexes. Its headline number—the Purchasing Managers Index (PMI)—is closely tracked by economists, policymakers, and investors alike.
Ore spoke with Senior Editor Mark B. Solomon in early October about the report—its roots, its relevance, and what it tells us about the state of the U.S. economy.
Q: The ISM manufacturing report was established in 1931, during the depths of the Great Depression. How did the report get started, and did the economic conditions of the day play any role in its creation?
A: The Manufacturing Report on Business was established at the request of President Hoover to meet a need for more current information on the economic conditions during the period. As you might imagine, the quality, timeliness, and amount of economic data available to policymakers was less than sufficient in those days. The ISM Manufacturing Report on Business provided timely data that revealed the level of activity in an important and growing sector of the economy.
Q: We are conducting this interview in early October, just days after ISM released its September report—the first in nearly 18 months to show an appreciable slowing in manufacturing activity. What does the September report tell you about the balance of the year and the early part of 2011? A: September was the 14th consecutive month of growth for U.S. manufacturing based on the PMI at 54.4 percent. This represents an 8.8-percent month-over-month improvement and signals that manufacturing continues to grow faster than the rest of the economy. The driver for manufacturing to this point is a somewhat typical business cycle recovery as it has sized employment, inventories, investment, and capacity to levels that meet current demand. But that phase is now behind us, and the manufacturing recovery is slowing and will remain slow unless there is an improvement in consumer spending and business investment that fuels the next stage.
While we will see continuing growth in Q4, it doesn't appear to be sufficient for significant job creation. The United States has lost 2 million manufacturing jobs; they are difficult to replace, and it can't be done quickly. Prospects for 2011 may be better, but it will be relative to how strong the recoveries are in autos and housing as they drive manufacturing in a number of other industries, such as plastics and rubber products, primary metals, fabricated metals, and textiles.
Q: The National Bureau of Economic Research (NBER) said recently that the current recession ended in June 2009. And yet there are lingering concerns about a so-called "double dip." Based on what you're hearing from purchasing and supply managers, how do you come down on these issues? Is the economy in more of a mid-cycle correction than a second trough? A: The NBER determination is an attempt to place beginning and ending dates on the recession. From a macroeconomic standpoint, it is good to have one group that everyone looks to make the determination. The ISM data is more about microeconomics, as we are looking at the 18 manufacturing industries that comprise 12 percent of GDP. A number of industries, including printing, textiles, wood products, and furniture, are still in a recession. Many businesses are still feeling the effects of this downturn. The recovery has been kinder to medium to large businesses than it has been to small ones. The point is that we are not totally out of this, and the employment statistics show it.
At the same time, we have a very resilient economic system, and left to its natural strength, it solves most of its problems on its own. The current trend toward slower growth in new orders and production may continue into next year. As I stated previously, we need a significant improvement in consumer and business confidence to drive the overall economy. That would be 3.5 percent or higher growth in GDP. Will there be a double dip? There is nothing in the current data that would lead to that conclusion.
Q: We began hearing from transportation folks several months back that while shipping remained robust, activity at the front end of the supply chain—new orders—had begun to tail off. Does the September report bear witness to that, and will this softening trend be with us for a while? A: Yes, the rate of growth in new orders began slowing in June, and the August-September month-over-month improvement was only 2.2 percent, compared to 30 percent back in June. But that is not atypical of a business cycle recovery. The transportation sector is a good indicator because it is one of the first to see improved activity. ISM measures customers' inventory levels, and they appear to be too low at this time. So we may see some improvement if customer confidence improves.
Q: ISM peppers the report with anecdotes from managers across multiple industries. How relevant are the anecdotes, relative to the actual data, in shaping your analysis of trends? A: The anecdotes are an attempt to share some of what is on the minds of supply managers, who are out there on the front lines. We try to select quotes that are indicative of the story that is in the month's data.
But the trends in the data are the most important. I have found that the trends tell the ultimate story. I have learned to trust the trends in the ISM data. They are quite reliable and should be one of a number of data sources decision makers use in determining their strategies.
Q: The September report showed a sizable jump in the prices-paid component, which continues a months-long upward trend. The increase in that component has also coincided with a slowing in supplier deliveries. Will an economic slowdown cause the pace of deliveries to pick up, and thus lead to a moderation in prices? Or is there an inflation threat lurking in our future? A: The prices-paid component reflects the prices manufacturers pay for their inputs and is the most volatile of the indexes. It is a good source of information on commodity prices. While the index was higher in September, the number of commodities up in price needs to be greater before it would be of concern. Sellers had significant pricing power during the first half of this year, but with the slowing in growth, their pricing power has weakened. The comparison of the speed of deliveries to prices is quite valid and one of the indicators that can be used to determine if deliveries have slowed sufficiently to signal that demand is strong enough to support higher prices.
With regard to inflation, there are no signs in the ISM data at this time. Many believe, however, that inflation is a monetary phenomenon, so while it may not be an issue in the near term; it may be a challenge in the future.
Q: Our readers are mostly logisticians. Is there a particular index they should key on as a harbinger of future activity? A: I would recommend they look at ISM's New Orders and Customers' Inventories indexes in particular. The New Orders Index is considered a leading indicator and provides excellent insight into the level of activity that logisticians might expect in the coming 45 to 90 days as manufacturers see their order books rise or fall. The Customers' Inventories Index is coincident and indicates the inventory level at the point of demand. When customers' inventories are too high, it will result in less activity in other links in the supply chain. Conversely, a reading that is too low, as we have presently, indicates customers are delaying restocking or are unable to restock fast enough.
Editor's note: Mr. Ore's comments refer to the September ISM report, which was current at the time of the interview. The latest report is available at ISM's website.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.