The December ISM “Report on Business” is out… [News]

…And the news is good – not drastically, but good nevertheless. The Institute for Supply Management (ISM) brings out a report on the state of business every month. The last year (with the exception of the last few months) has pretty much been gloomy. So I thought, Why not share the love!!
The ISM’s PMI (Purchasing Manager’s Index) is an important parameter to gage the state of the economy. It gives an idea of the health of the manufacturing sector and many businesses use it as a leading indicator to the state of the economy in the months to come. With so much importance associated with the PMI, its good to note that the latest numbers indicate an overall “expansion in the economy”.
Here’s a screenshot from the report that lets you look at how the PMI has been moving in the past year. The entire report is free to view online.

That write-up certainly makes me feel better. Especially the last line about a 4.6 increase in the “Real GDP”.
ANALYSIS:
One thing makes me especially happy. The fact that the increase in real GDP between the whole year (1.6%) and the increase in real GDP for December alone (4.6%) is an extremely significant number (3%). The Significance of the Real GDP is encompassed in this one line.

If a set of real GDPs from various years are calculated, each using the quantities from its own year, but all using the prices from the same base year, the differences in those real GDPs will reflect only differences in volume.

Source: Wikipedia Article

What does this mean? This means that, compared to individual months in the rest of the year, a considerably larger amount was purchased in December. And that is exciting. Especially for the Supply Chain Industry. Why? Because if people (not just end-consumers but enterprise spending too) purchased so much more in December, it means the products got from one place to another – and that spells revenue for the SCM industry. The reason I specify just products and not services is because the ISM’s Non-Manufacturing index is still not as stable in its upward trend as the manufacturing index. Take a look.

And in case you don’t want to read the rest of the ISM report, here’s a few snippets from the manufacturing side of things.

 Source: ISM Report on Business

Google and the Supply Chain

Today, Google made a huge announcement. They launched a new phone, called the Nexus One in partnership with HTC and T-Mobile. But the hugeness and the excitement was not in the launch. As Google often does, the awesomeness is in the silent details. Google will be selling the phone thorough an “online retail” channel. What does that mean? The entire merchandising and logistics is going to be taken care of by Google.

You know, one of the things I’ve always wondered about was Why isn’t Google in the Logistics space? I mean, they’re certainly more than capable of writing software to route, schedule and track shipments. They have an impeccable maps software which if they could somehow automate, would give the best possible route taking into account a lot of factors. In a way, I have a hunch that Logistics is exactly what they’re going to be doing with the Nexus One. I was watching a Live Stream of the Nexus One launch and I heard someone ask a question about who was going to hold the inventories. Google’s VP of product development, Mario Carlos just avoided that question. Like with a lot of things that Google does, I think this secrecy is in fact a silent yes. If what I think is right, Google, in addition to opening an online store, will also be maintaining a physical inventory of phones which they will then distribute.

ANDROID PHONES:

We already know the fact that the Android phone community numbers about 18-20. This number is certainly going to increase in 2010 what with Motorola committing its entire Wireless division to develop android phones. Motorola alone expects to launch about 25 Android phones and Google has a steady partner in HTC which already has 7 Android Phones (including the Nexus One). Why am I talking about all this? I’m trying to drive home the point that Google wants its web page to become a landing ground for people to buy Android Phones. This means, they will certainly have more phones being sold through the online channel. Take an estimated 800000-1m Moto Droids that are rumored to have been sold from Oct 2009, multiply it by say 5-6 phones in 2010 and you have Google serving an impressive number of customers. Google might just do for mobile phones what Amazon did to book-buying.

THE SUPPLY CHAIN:

We also know that Apple drives a majority of its costs down by maintaining an extremely efficient supply chain. They were even acknowledged by AMR to have the best supply chain in the world. If Google does get into the supply chain game in a big way, I can’t help thinking of the wonderful things they could do to the supply chain with their culture of speed and efficiency combined with rapid innovation. There’s a winner for you already. I always thought Google’s culture was more suited for a Supply Chain Organization than for a software company. With the right tools, now that they have the right people (which is extremely important), Google might just be able to pull it off.

Now this post might seem like wishful thinking to many. But it probably is just ahead of its time. I foresee me writing about the same topic many times in the future. For now, I’m just hoping that Google does indeed start a Supply Chain Operation. That thought certainly attracts me.

For now, its good to know that I’m not the only one who thinks about Google and the Supply Chain. Here’s two articles that think about the Google way of running a Supply Chain.

Supply Chain Market Analysis: The Google Way

A Google approach to Supply Chain Management

Bull Whip Effect 2009 - el error clásico

Not to say that showing off my Spanish skills helps the cause, but at least one person has recognized the Bull Whip Effect that occurred as a result of the economic downturn. Check out what Avnet’s CEO had to say about how companies reacted to the downturn. And in case you haven’t heard about Avnet, hit the jump here.

Avnet CEO Roy Vallee, quoted in a Barron’s article,  says that "the supply chain was in reasonably good condition" heading into the downturn, with high inventory turns and capacity-utilization rates in the 80 percent to 90 percent range. As demand slowed, "there was a dramatic reaction by all participants to cut inventories and manufacturing capacity." In hindsight, he adds, "the whole supply chain overreacted...and is now trying to get caught up."

Source: SupplyChainBrain Article

This, dear friends, is the classic example of the Bull Whip Effect – Basic Supply Chain 101. This is something that we are advised to avoid (albeit only in books and classrooms). The point I’m trying to put forward here, is that despite the amount of research we have done in Supply Chains, companies continue to make the same mistakes they have always made. I think I can safely say that despite all the advances we’ve made in Supply Chains, we still do not have a system that enables effective sharing of information and trust.

I am afraid this trend will continue. I agree to the fact that people work within the system and that the system must be the chief enabler. But the folks devising the system must understand that Supply Chains are follow a pattern more related to human behavior than any other function in modern businesses. The perfect supply chain is not the organization that is the most automated or that has the most technology. The perfect supply chain is not the organization that has the most information visibility. The perfect supply chain is the one with the most like-minded people, well-trained and working towards a common goal. I say this because, even though the system is the chief enabler, the bottom line in supply chains is execution – and that, depends on the people you have.

Here’s a few more forecasts that cast some light on what we can expect in 2010. This is apart from what you read on SCM Blog sometime back.

Now, there are promising signs that underlying demand is improving. "The strength of our Asian business would cause me to say digital consumer demand broadly is pretty good," Vallee says, adding that "industrial demand also is improving." Meanwhile, IT business remains strong in Asia and is improving in the Americas (though Europe lags behind those markets).
Research firm Gartner recently said that global chip revenue will be down 11 percent this year, marking the second consecutive down year in semis, an historic first. Vallee thinks that the extended downturn sets up the sector for an impressive rebound; he sees double-digit gains in 2010, which is consistent with Gartner's forecast for 13-percent growth.

Source: SupplyChainBrain Article