2010 – Recovery and Risk

Happy New Year? Or Not?

According to the Institute for Supply Management’s latest Manufacturing ISM Report On Business®, “the manufacturing sector expanded in December for the fifth consecutive month, and the overall economy grew for the eighth consecutive month.”

Nevertheless, as we look at the year ahead we are still recovering from one of the worst economic climates since the Great Depression.  There is little doubt that suppliers in commodity channels will be again at the mercy of their customers for lower costs, green products, inventory-free supply chains and stretched out payment terms.

I think we can also expect major initiatives from leading global supply managers, as they adjust to the new landscape and try to find ways to gain a competitive edge or hedge their bets to protect against the dangers of an economy recovering in fits and starts. Already we have seen a major announcement from Wal-Mart saying it wants to achieve lower costs by going to sources directly — cutting out the middle level of distribution.  I have also read that there the giant retailer will push to get supplier support of green initiatives.

Many companies that have reduced demand will not be as willing to add capacity quickly until markets and customer demand level off. Consequently, that reluctance will likely bring shortages in some categories.  It is also likely that we will see prices rise sporadically as demand and supply go out of balance.  Overall, increasing activity in 2010 will bring increased prices and inflation.

Supply management talent, already in short supply, will become increasingly tough to come by this year, and companies will have to make investments to attract, develop and retain people who can generate value from the supply chain.

These are significant challenges, but I am looking forward to working through them as the new year unfolds.

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