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September 21, 2022
Supply Chain Scrutiny Increases Even With Improvement

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The Institute for Supply Management Services Purchasing Managers’ Index for August saw a slight movement into more positive economic territory. 

Meanwhile, a second organization participating in the business sector, the Association for Supply Chain Management, announced that it has partnered with accounting and business services firm KPMG to launch a new monthly Supply Chain Stability Index that provides indicators that could be helpful in assessing the state of goods movement in the United States.

Economic activity in the services sector grew in August for the 27th month in a row, with the Services PMI registering 56.9% and moving away from the 50% figure that represents the dividing line between growth and contraction.

In the ISM Report on Business, based on its survey of purchasing and supply executives in the United States, Anthony Nieves, the services business survey committee chair, noted that the services PMI came in 0.2 of a percentage point higher than July’s reading of 56.7%.

“The Business Activity Index registered 60.9%, an increase of 1 percentage point compared to the reading of 59.9% in July,” he said. “The New Orders Index figure of 61.8% is 1.9 percentage points higher than the July reading of 59.9%. The Supplier Deliveries Index registered 54.5%, 3.3 percentage points lower than the 57.8% reported in July.”

Nieves pointed out that Supplier Deliveries is the only Report On Business index that is inversed, as a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.

“The Prices Index decreased for the fourth consecutive month in August, down 0.8 percentage point to 71.5,” Nieves maintained. “Despite an improvement in inventory levels, services businesses still continue to struggle to replenish their stocks, as the Inventories Index contracted for the third consecutive month. The reading of 46.2% is up 1.2 percentage points from July’s figure of 45%. The Inventory Sentiment Index, 47.1%, down 3 percentage points from July’s reading of 50.1%, moved back into contraction territory in August.”

In the Services PMI, 14 industries reported August gains.

“Growth continues — at a slightly faster rate — for the services sector, which has expanded for all but two of the last 151 months,” Nieves reported. “The services sector had a slight uptick in growth for the month of August due to increases in business activity, new orders and employment. Based on comments from Business Survey Committee respondents, there are some supply chain, logistics and cost improvements. However, material shortages remain a challenge. Employment improved slightly despite a restricted labor market.” 

The 14 services industries reporting growth in August versus July, listed in order of gains were Mining; Real Estate, Rental & Leasing; Utilities; Construction; Educational Services; Information; Transportation & Warehousing; Wholesale Trade; Health Care & Social Assistance; Public Administration; Finance & Insurance; Management of Companies & Support Services; Professional, Scientific & Technical Services; and Other Services. The two industries reporting a decrease in the month of August were Agriculture, Forestry, Fishing & Hunting, and Arts, Entertainment & Recreation. The report included a characterization of retail as flat.

For its part, the Supply Chain Stability Index launched accompanied by an inaugural report concluding that, over the past two years, the level of stress in supply chains has more than doubled thanks to a steady stream of disruptions, risks, and regulatory requirements, increasing the frequency of disruptions, which jolts likely to continue.

The Supply Chain Stability Index uses machine learning and statistical models fueled by market-level supply chain data to offer insights into performance variability and to project an outlook for the near-term, ASCM and KPMG jointly stated. Moving forward, index updates will provide stability assessments for the U.S. supply chain on a periodic basis. The intention is to provide organizations with a perspective on how industries perform in the midst of volatility and considerations for assessing areas of their supply chain that are adequately resilient and those that require more stabilization.

“Crisis mode has become the new normal,” said ASCM CEO Abe Eshkenazi, in introducing the index. “What we’re seeing is that ongoing market volatility continues to impair supply chain performance which is why there is a need to not only improve service, cost and inventory, but to stabilize it. And when it comes to creating resilient supply chains, one thing we do know — and have confirmed with the index — is that talent makes the difference. If we’re going to solve this, we need the right people.”

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