As a follow up to survey results released on March 11 and April 14, the Institute for Supply Management (ISM) recently released its third wave of research on Covid-19 impacts on businesses and their supply chains. Insights reflect input gathered by ISM primarily from US-based respondents between May 7 to May 25.
97 per cent of respondents reported that their organisations have been or will be impacted by the coronavirus. Survey results note that more than three-quarters (76 per cent) of respondents report reduced revenue targets of 23 per cent on average, with 61 per cent reporting a 35 percent reduction, on average, in CAPEX plans. Only the Finance & Insurance subsector did not report an expectation of reduced revenue.
The majority (81 per cent) reported that demand for their products has decreased, on average 15 per cent, however four sectors did report higher demand: Health Care & Social Assistance (+13 per cent), Finance & Insurance (+7 per cent), Food, Beverage & Tobacco Products (+5 per cent), and Computer & Electronic Products (+3 per cent).
“Overall, the data indicate that companies have responded to the pandemic disruption by paying much closer attention to their supply base – reporting increasing communication with existing suppliers while diversifying risk by qualifying alternate and/or additional suppliers,” said Thomas Derry, CEO, ISM. “Firms are also mitigating risk by carrying more inventory as a buffer against disruption.”
In early April, 95 per cent believed their organisation would experience some impact due to Covid-19 disruptions. By the end of May, this increased to 97 per cent of organisations who will be or have already been impacted by coronavirus supply chain disruptions.
Severe supply chain disruptions were experienced in multiple regions to varying degrees, but, as of this most recent survey, had decreased in Japan and Korea. By the end of March, severe disruptions were being reported in North America (nine per cent of respondents for US supply chains, six per cent of respondents for supply chains elsewhere in North America), Japan and Korea (by 17 per cent of respondents for each), Europe (by 24 per cent of respondents) and particularly China (by 38 per cent of respondents). By the end of May, severe disruptions were being reported in North America (15 per cent of respondents for US supply chains, 15 per cent for supply chains in Mexico and 10 per cent in Canada), Japan by 15 per cent of respondents and Korea 14 per cent of respondents, Europe (by 26 per cent of respondents) and particularly China (by 36 per cent of respondents).
“However, despite these proactive measures, confidence in the outlook for the end of 2020 has declined, as an increasing majority of firms now expect moderate to severe impact on operations in the third and fourth quarters of 2020,” said Derry.
As the virus’ impacts continue, global and domestic US organisations are reporting the following primary supply chain impacts.
- Average lead times for inputs have improved in most regions compared to the end of March and are less than twice as long as compared to “normal” operations, for Japan (195 per cent), Europe (195 per cent) and domestically sourced inputs (179 per cent). China (215 per cent) and Korea (200 per cent) are still at or above twice as long as “normal.”
- Right now, compared to the end of 2019, 77 per cent of respondents report that lead times for inputs from China have pushed out. Eighty-three percent report longer lead times for European inputs and between 57-69 per cent report lengthening lead times for inputs sourced from North American countries.
- During the third quarter, 40 per cent of respondents expect lead times to lengthen for US inputs and 28 per cent of respondents expect longer lead times from Canadian suppliers and 39 per cent expect longer lead times from Mexico. Europe is expected to be most impacted, with 50 per cent of respondents expecting longer lead times for European inputs.
Domestic manufacturing is operating at 74 per cent of normal capacity. Chinese manufacturing is at 76 per cent and European manufacturing is at more than half at 64 per cent.
- Firms report that operations in North America have or are likely to have inventory to support current operations, but confidence has declined (the US, 64 per cent; Mexico, 49 per cent; and Canada, 55 per cent).
- Except for Japan and Korea, a majority of firms believe they will have sufficient inventory for Q4. As of the third round of research, uncertainty has decreased as to whether inventory will be sufficient to support domestic and global operations.
- Eighty-one percent of respondents say their firms’ input inventories have been adjusted and almost one-half are holding more than usual.
- In an already tight talent market, many respondents (47 per cent) report that their organizations will likely delay hiring this quarter, 31 per cent will reduce hours, and 27 per cent will reduce headcount.
- In late February, respondents reported that staffing levels in China stood at 56 perc ent of normal. By May, levels had recovered to 88 per cent of normal.
Reshoring & Nearshoring
- Most firms (56 per cent) are not considering reshoring or nearshoring.
- Twenty percent of firms are planning or have begun to reshore or nearshore some operations.
- Four percent are planning or have begun to reshore or nearshore most operations.
The survey’s 676 respondents largely represent US manufacturing (58 per cent) and non-manufacturing (42 per cent) organisations. Miscellaneous Manufacturing (11 per cent); Transportation Equipment (seven per cent); Fabricated Metal Products (six per cent); Electrical Equipment, Appliances & Components (six per cent); and Machinery (six per cent) were the top manufacturing sub-sectors. Health Care & Social Assistance (seven per cent), Other Services (six per cent), and Professional, Scientific & Technical Services (five per cent) were the top three non-manufacturing sectors represented by respondents.
Eighty-five percent of the respondents come from organizations with annual revenues of less than US$10 billion, with 49 per cent under US$500 million. Respondent roles range from emerging practitioner (four per cent), to chief procurement officer (five per cent), with 77 percent being experienced practitioners, managers, directors and vice presidents in a supply chain management role.