Every manufacturer needs to start taking a more data-driven approach to defining the initiatives and strategies that will keep their businesses growing despite economic uncertainty. GETTY
- The Institute for Supply Management’s (ISM) leading indicator of U.S. manufacturing, the Purchasing Managers’ Index (PMI) fell to 49.1% in August, the lowest reading since January 2016 with any reading below 50% signaling industry contraction.
- ISM’s panel of manufacturers’ comments reflects a notable decrease in business confidence with the PMI ending an expansion phase that spanned 35 months.
- ISM®'s New Orders Index contracted for the first time since December 2015 (when the New Orders Index registered 49.6%) and ended a 43-month expansion period in which it averaged 58.5%.
ISM’s August 2019 Manufacturing ISM® Report On Business® published last week reflects the manufacturing industry is heading into a recession. The ISM’s many metrics, including the PMI, are all seen as leading indicators of the manufacturing industry. Be sure to read the press release detailing the 11 metrics that comprise the ISM”s scorecard here. Comments from manufacturers who participated in their monthly survey reflect growing uncertainty over the economy, more constrained supply chains and fears over orders slowing down last month. ISM makes the following dashboard available every month comparing Index values, percentage change, and direction. Nine of the 11 indices are contracting as of the latest ISM survey. Trending starting in 2011 for ISM’s Manufacturing Index is to the right. Please click on the graphic to expand for easier reading.
AUGUST 2019 MANUFACTURING ISM® REPORT ON BUSINESS®
Manufacturers who are the most negatively impacted by the trade wars are redesigning and re-routing their supply chains to eliminate tariffs, so they don‘t have to raise their prices. Lack of confidence in the economic situation and trade forced new export orders to contract last month; further sign manufacturers are busily redesigning their supply chains in response to tariffs. In summary, the manufacturers interviewed for the ISM, and their activity predicts that economic turbulence, uncertainty, and trade wars are the new normal. Manufacturers need to become more resilient and self-directed with better data to keep growing in the new reality of economic and trade uncertainty.
Taking A Data-Driven Strategy To Growth Pays In Uncertain Times
Economic and trade uncertainty is the new certainty. Every manufacturer needs to start taking a more data-driven approach to defining the initiatives and strategies that will keep their businesses growing. The best countermeasures capitalize on and scale the data manufacturers have been accumulating in some cases for decades. The following strategies enable manufacturers to capitalize on the data they’ve been aggregating and analyzing on suppliers, pricing, production and operations, quality, and service. In short, these strategies have an insight track on succeeding during challenging, uncertain economic times by delivering quicker results and immediate payout. They include the following:
- Improving Aftermarket Performance with data-driven insights can deliver revenue even in the middle of a recession. Manufacturers need to ask themselves if they are getting their fair share of the high margin parts and service aftermarket. Many aren’t. It’s because they don’t make full use of the data they have to gain greater competitive insights into knowing what products and services their customers need and how likely they are to buy. As plant utilization and new equipment buying slow down, the parts and services business usually picks up to keep current equipment operating. However, parts replacements may slow down as utilization drops. With ISM signaling a potential manufacturing recession, now is the time for manufacturers to look at how they can better use and mine existing data to get their fair share of the aftermarket.
- Increase sales effectiveness by providing more prescriptive, intelligent, CPQ selling tools. Indirect and direct sales teams are often the most expensive talent teams to recruit, retain, and grow. What makes this area challenging during a recession is that it’s also one of the departments with the highest churn rate of personnel. The challenge is how to scale direct and indirect selling teams while increasing sales effectiveness. The answer is to migrate away from manual approaches and adopt more automated selling, sales management and CPQ applications designed for usability and quick onboarding of new sales reps. Sales teams will be able to identify the key market and application factors that will increase sales quickly.
- Start taking action now to close the system gaps between engineering, marketing, sales, and manufacturing to quit wasting gross margin and speed up getting new products to market. The more data-driven a manufacturer becomes, the more they’re able to see just how much margin they’re sacrificing by not having PLM, CRM, Pricing, and ERP systems in sync with each other. When economic uncertainty is the new certainty, have a single view of the product from inception to it being discontinued pays the following dividends:
- Improve product quality and machinery yield rates using real-time data shared across engineering, manufacturing and service systems starting with reducing scrap and moving on to reducing Non-Compliance/Corrective Action (NC/CA) and more.
- For the first time, production can flex and respond to the needs of new markets not accessible due to how disconnected and isolated the systems were.
- Reduce pricing errors because the product model is the system of record with engineering, sales, marketing, and production all collaborating from the same pricing data.
- Be relentless in taking needed steps to improve productivity and reduce costs intelligently. Once the data form PLM, CRM, Pricing, and ERP systems are shared, insights will emerge on how to improve productivity and cut costs. Be relentless in trimming indirect costs and seeing how fixed cost reductions can be made while improving Customer Service and Field Service productivity by better managing how many customer issues are closed and monitoring their overall engagement and customer satisfaction scores.
Bottom Line: Face the fact that economic uncertainty and trade wars are going to be the new manufacturing reality most likely for years to come, and your strength as a manufacturer tomorrow will be defined by how well you capitalize on your many sources of data today.