The Economy: Big Picture

In the last month, we’ve participated in at least six economic forecast presentations or discussions with experts (economic, banking, investment, manufacturing). Although they each had nuances, common themes emerged. Adding our expertise into the mix, we see volatility on the horizon. 

The bottom line is that inflation is likely to continue, interest rates are unlikely to decline near-term without creating additional down-the-line inflation, unemployment will have fits and starts and trend up slightly yet the labor participation rate will remain lower than pre-pandemic. From a jobs standpoint, low skilled jobs are being automated, yet high-skilled jobs are experiencing a severe skills gap. Overall, the economy will be slower than it has been. Last but not least, geopolitical risks are concerning every expert, leaving volatility the name of the game in the foreseeable future.

The Economy & The Data

A summary of findings from recent research on the state of the economy includes the following:

• Stimulus (COVID money flooded the economy): Inflation would need to rise by 30% to absorb the stimulus. So far, inflation has gone up around 20%. Thus, there is around 10% left to absorb to get supply and demand in alignment. If interest rates stay put, the COVID funds will run out in about a year. Otherwise, we will have spurts & starts.
• Government spending: Government spending has continued at historic levels. For example, in 2023, nominal GDP was up $1.5 trillion yet federal debt increased $2.5 trillion, leaving a gap. Debt is increasing at what some see as an alarming rate.
• Inflation rate: It has gone up by 20%, but to absorb the stimulus, there is still 10% to go. It is likely interest rates will remain flat to work through the COVID money. If not, there will be bursts of inflation and recession (volatility). Inflation is likely to stay higher than the goal around 3-3.5%.
• Unemployment rates & labor participation rates: Layoffs surged 136% in January to the second-highest level on record with financial companies, the technology sector, food production companies, and retail with the highest levels (in order of sequence). On the other hand, these findings led the experts to think employers would show the latest hiring at 180,000 workers yet the number came in double that amount (353,000). The unemployment rate stayed about the same at 3.7% with the labor force participation rate at 62.5% (which close to 1% lower than pre-pandemic, 63.4%). There is 1.3 jobs for every person looking for a job. From a client point-of-view, they simply do not have the high-skilled resources required although they are automating low-skilled jobs, and depending on the industry, they have put a pause on hiring.
• Wages: Workers’ wages are improving but they still have not caught up with inflation. In the last three years, real average hourly earnings are still down 2.4%. Thus, people are not feeling better.
• GDP (gross domestic product): Real gross domestic product has largely recovered. It increased 3.3% in the 4th quarter and consumer spending has remained relatively strong. It shifted from goods to services, but has held up overall even with the interest rate hikes thus far.
• Banking: There is concern about the regional banks. They hold most of the commercial real estate loans that will need to be refinanced at higher rates over the next few years. Also, bank’s liquidity requirements are driving concerns with the changing of bonds prices with the quick increase in interest rates.
• Geopolitical risk: Every expert mentioned concern around geopolitical risk. It will lead to inflationary pressures with reshoring, increased prices (for example, the Red Sea rates, diversion costs, and/or expedite costs), impact on energy prices, etc.

The bottom line can be summed up in with the misalignment of demand and supply, the shrinking workforce (with Baby Boomer retirements – by 2030, the youngest of the largest generation in history will be older than 65) combined with the divergent needs for high-skills vs low skills, and the emergence of high geopolitical risk. Thus, volatility and uncertainty will remain.

What Should We Take Away

Smart executives will take bold actions to ensure they can supply their key / ideal customers while pruning low margin/ non-value added customers. They are adding customer/ product profitability, pricing, and costing trends into their SIOP (Sales Inventory Operations Planning) processes to evaluate options, set strategy and make decisions.

They will invest in the best high-skilled resources, supplement with additional options (refer to our article, Where the Talent Has Gone, and create a high-performance culture. Strong leaders will be pivotal to ensuring success. People follow leaders; not companies.

Proactive clients are upgrading ERP systems to ensure the basic processes (blocking and tackling) are in place. Additionally, they are rolling out advanced technologies including artificial intelligence (AI) to automate, digitize and thrive. To read more about these strategies, refer to our article, Automate, Digitize and Thrive in Supply Chain. It will be cornerstone to success in the next decade.

Additionally, smart clients are upgrading business processes, cleaning up their data to better utilize their ERP and peripheral systems, and building flexibility and scalability into their future thinking. The core processes include demand planning, production planning, engineering (for engineer-to-order ETO and configure-to-order CTO companies), production and inventory control, and replenishment/ distribution planning processes. From a data perspective, it is important to review bills of materials, routings, work centers, item masters, customer and supplier masters, and MRP parameters. Proactive clients are ensuring the basics are intact and they are focusing on the roadmap to stay at least a few steps ahead of changing conditions.

If you are interested in reading more on this topic:
Supply Chain Volatility, Risk & Capacity Remain Critical Priorities

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Lisa Anderson was quoted in Manufacturing Dive about how manufacturers can navigate a slowing economy.

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Big brands are laying off workers amid lagging demand. But experts say there are more strategies that can help keep teams nimble for an economic turnaround.

As the economy stagnates and global factory activity remains slow, some manufacturers have taken drastic steps to quickly cut down on costs by laying off workers and closing facilities.  

Stationary bike maker Peloton’s manufacturing subsidiary Precor announced in March that it would close its factory in North Carolina and lay off more than 100 employees.

U.S. EV manufacturer Lucid said it would lay off about 18% of its overall workforce last month, and Solo Cup manufacturer Dart Container Corp. laid off 84 workers. The tools-maker Stanley Black & Decker said it would close two facilities in Texas and South Carolina, too.

Manufacturers are making these decisions as consumer spending — which surged during the pandemic — returns to past norms and demand slows.

Still, headlines about layoffs and factory closures may not fully reflect the current state of U.S. manufacturers, said Chad Moutray, the chief economist at the National Association of Manufacturers. Despite concerns about a potential recession, Moutray argued that manufacturers are coming off a remarkably successful few years and that the current surge in layoffs isn’t particularly centralized in the manufacturing sector.

the shortage of skilled workers may be a reason to avoid layoffs and hold on to as many permanent employees as possible, said Lisa Anderson, founder and president of the supply chain and manufacturing consulting firm LMA Consulting Group. While manufacturers are understandably nervous about the impact of declining orders on their bottom line, there are also other strategies to prepare for a slower economy, she explained.

Originally published in Manufacturing Dive, April 18, 2023

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Special Report: How Companies Should Reshape to Succeed in 2023 & Take Advantage of Huge Opportunities Coming Down the Pike

The world remains in chaos and businesses are conflicted about what to do. The next year will separate the market leaders from the rest. We talked with top notch trusted advisors about what their most successful manufacturing, supply chain and technology clients are doing to not only succeed in 2023 but to prepare to take advantage of the huge opportunities on the horizon. Twenty-seven trusted advisor experts discuss what companies need to do to reshape in 2023 to thrive for decades to come.

Insights from 27 Trusted Advisors

There is much going on in the world from navigating stubborn inflation to fears of recession to geo-political risk. In addition to my foreword (executive summary), we cover a wide variety of key topics impacting manufacturers, distributors, retail, and healthcare including:

• Commercial relocation
• Cyber
• Geopolitical & natural resources risk
• Human capital – Planning & scheduling, labor law compliance, talent
• Insurance – Commercial
• Logistics (airports, cargo, distribution, global supply chain, ports)
• Marketing – Artificial intelligence & communication
• Manufacturing – Nearshoring (Central America, Latin America, Mexico, etc.)
• Manufacturing – Reshoring
• Manufacturing – Offshoring (India)
• Manufacturing – Talent
• Supply Chain – Software, artificial intelligence, sourcing & architecture, mitigating risk, process & people
• Technology – Artificial intelligence, infrastructure, ERP, the customer experience

Link to Download the Report

We are pleased to offer a complimentary download to our newsletter subscribers –

Please contact us with feedback, stories, issues, and opportunities on what you’re seeing, topics of interest, and what you’re doing to succeed and differentiate yourself from the crowd. And, please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Learn more about these topics in our blog and download your complimentary copy of our eBooks including our new release, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Success.

The post The Road Ahead: Business, Supply Chain & The World Order is Available appeared first on LMA-Consulting Group, a supply chain consulting firm.

In the last few weeks, I’ve participated in three different economic events, talked with trusted advisors and seen what clients are experiencing. From banks to economists to executives, differing views emerge. But, what is the bottom line? According to the pundits:

• Best case: economic stagnation
• Worst case: recession with continued inflation

Here are a few noteworthy stats:

• Money supply expansion: it has expanded at a breakneck pace with stimulus etc. ($5 trillion to $20 trillion) – not pocket change
• Inflation remains high: Although inflation is coming down, it is still quite high vs. target inflation. Projections range from 3.5% to 4.5% at the end of 2023. Bringing it down the last few percentage points is likely to be FAR more challenging than the first 5 or 6 points.
• GDP growth: flat at best; recession is likely to some degree
• Workforce deficit: There are 1 million less people in the workforce now vs. pre-COVID. Companies still need key talent.
• Fed: Interest rates will continue to rise. The only question is the rate and pace. The oddity is that the goal is to increase unemployment to cool the economy yet there is a shortage of workers vs. pre-COVID. What unintended consequences might arise?
• Treasury yield curve upside down: Short term rates high (driven by the Fed) way above long-term rates (driven by the market).
• CEO survey: According to a Conference Board survey, a recession is the biggest worry.
• Business equipment investing: Down by 3.7% in the 4th quarter.
• Supply chain remains out of alignment: The bubble has moved from shortages to inventory gluts and the bottleneck continues to move. The implicit goal of the economic levers being pulled is to decrease demand instead of increase supply, but what will be the unintended consequences? Shortages remain in several sectors such as baby formula, services (just try to rent a car in Kansas City), baby Tylenol and more.

What Will This Mean?

We are in a period of VUCA – volatility, uncertainty, complexity, and ambiguity. Thus,

1. Key challenges will remain: Navigating inflation, recession, global unrest, and more will continue.
2. Yet more opportunities will arise than ever before: The smart companies will have more opportunities to grow and take market share from the weak and reactive that will set the segment leaders for decades to come.

For example, during the recession of 2009, clients that panicked and slashed inventories without looking at the big picture (and right-sizing inventory to preserve cash yet be able to take advantage of key opportunities) suffered badly with service as they realized they cut the wrong items in the wrong place at the wrong time. Service tanked and sales suffered. On the other hand, those who thought forward and invested in a key resource when everyone was laying off or increased inventory of a strategic material so that they could take advantage of an opportunity when a competitor ran out leaped forward as the competition treaded water. Use a touch of common sense, and you’ll thrive.

Listen to our recent Supply Chain Chats about what to expect, how it relates to what’s going on with Ukraine, China, rail strikes, and more, and most importantly, what you should do about it.

Where Should We Focus?

Take quick action and consider the following priorities:

• Margin: every client has a multitude of opportunities to increase margin from pricing to cost reduction to automation to redesign, opportunities abound.
• Inventory: cash is king. Think ahead about risk and demand, right-size your inventory and capacity with planning best practices, and align with a SIOP process. In essence, proactively balance demand and supply instead of letting demand spikes/ troughs or supply disruptions or imbalances drive you.
• Ability to scale quickly: To take advantage of opportunities yet navigate tough times, build flexibility and scalability into your capabilities.
• Technology: Utilize the “right” technology to provide a superior customer service, improve margins, accelerate cash flow and build sustainability, repeatability, and efficiency into your processes. Why not fully leverage already existing assets to your advantage?
• Talent: Do you have the talent to “see” and take advantage of the opportunities? One of our key clients hired a key engineer at the height of the recession, and he fueled growth for the next decade with product designs and much more. Another client invested wisely when the competition battened down the hatches. They soared as opportunities emerged.
• Remember the fundamentals: The best prioritize excellence of fundamentals and results follow. Inventory management is one of these priorities.
• Think big & be bold: Now is the time to take the leap to the future while the competition cowers in the corner.

Please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Several of these types of topics will be included in our forthcoming book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.

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The post Impact of Supply Chain Disruptions – Inflation, Recession, Volatility, Opportunity? appeared first on LMA-Consulting Group, a supply chain consulting firm.

Inflation, Recession, Both?

We are in unique times with inflationary pressures continuing while recessionary trends are emerging as well. In either instance, it is vital to right-size inventory. It will not change anytime soon. With interest rates rising rapidly, it will curb demand while increasing the cost of capital. On the other hand, with supply chain disruptions continuing and world events becoming more concerning, shortages will persist, driving up costs.

What Does It Mean for Inventory?

Whether inflation, recession or both, you’ll want to right-size your inventory. In essence, you will want to have the ‘right’ amount of inventory in the ‘right’ place at the ‘right’ time. This sounds far easier to do than it is in reality. As demand changes and supply shortages persist, what is the ‘right’ amount in the ‘right’ place at the ‘right’ time?

During inflationary periods, you don’t want excess inventory tying up cash unnecessarily, and it is especially problematic since it costs more to produce this inventory. Finance isn’t excited to pay suppliers for the inflated cost of materials and components and pay employees higher salaries to produce upfront, and then have to wait for customer payment. Clearly, in the food and beverage industry, expiration dates make this situation even more concerning.

On the other hand, during recessionary times, you cannot afford to have inventory (and therefore cash) sitting idle. As customers slow down in purchases, what used to be 3 months of inventory could easily turn into 6, 9 or even 12 months of inventory. Of course, that will put you into a cash crunch. Unfortunately, after the 2008-2009 recession, we were called into several clients to right-size inventory in order to resurrect customer service levels because they cut inventory in the ‘wrong’ products (materials, work-in-process or finished goods) in the ‘wrong’ place at the ‘wrong’ time. Clearly, although possibly required to survive, it did NOT set them up to be successful in growing the business because they cut in the ‘wrong’ areas.

What is Right-Size Inventory?

It is a tricky answer. In essence, you want the optimal amount of inventory (not too much but not too little since you don’t want to run out) in the right place (most likely, positioned close to your customer, at your customer’s location or with the appropriate transportation capabilities to arrive quickly at your customer) at the ‘right’ time (when the customer needs it accounting for changing conditions in the marketplace). In order to achieve this objective, you will need the ‘right’ amount of materials, components, and ingredients in the ‘right’ place (manufacturing facility that has capacity to produce near the customers that need the products and is the lowest cost producer) at the ‘right’ time. It is no wonder successful inventory management becomes dicey.

Process to Right-Size Inventory

The best clients with right-sized inventory prioritize the following:

• SIOP: They utilize a SIOP (Sales, Inventory & Operations Planning) process, also known as S&OP, to steer the ship in terms of the appropriate manufacturing facilities, capacities, supplier partnerships, pricing, make vs buy decisions and the like.
• Demand Planning: Keeping in alignment with your customers and sales patterns can prove tricky especially in such volatile environments. Since we are entering a world stage of VUCA (volatility, uncertainty, complexity, and ambiguity), having a resilient and evolving demand planning process will prove essential.
• Supply Planning (Production, replenishment, scheduling, materials, inventory, etc.): Keeping your supply planning processes in sync with changing capabilities while navigating supply chain disruptions is quite the task during VUCA. Your process must be flexible, proactive, analytic, predictive and innovative.
• Tools & Technology: There are limited resources and skills in every client. It will be vital to right-sizing inventory to utilize your ERP system to its fullest potential, evaluate whether advanced demand and supply planning software would add value, analyze trends and create dashboards with a business intelligence (BI) software, evaluate the need for predictive analytics, potentially utilize CRM software, automation and robotics, and more.
• Talent: All of the above will prove meaningless if you do not have the talent (or are able to source the talent), supplement and support your talent, and, most importantly keep your talent.

Pertinent Examples

We recently worked with a client that suffered in service levels to their customers (both on-time-in-full OTIF and lead times). Thus, growth potential was limited until resolved. In one facility, OTIF levels were in the 40%s and customers were unhappy. In another facility, OTIF levels suffered, but even worse, the lead times were too long and customers were looking to the competition. Not a good position for the market leader!

We worked with a cross-functional team to upgrade their SIOP process and to focus the discussion on meaningful data for decision-making. The meeting went from 3 hours of debate and conversation to an hour of focused review and decision-making. We also worked with the production planner to automate and upgrade the planning and scheduling process at the long lead-time facility. Production stabilized, output records were broken, and customer service improved dramatically. Lastly, we also worked with the replenishment and supply chain teams to calculate safety stocks and service levels, upgrade the process, better utilize the ERP system, and right-size the inventory across the supply chain network. Service rose to the low 90%’s.

Refer to our blog for many articles on planning, inventory and related concepts. Also, read more about these types of strategies in our eBooks, Thriving in 2022: Learning from Supply Chain Chaos and Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to right-size your inventory, contact us.

Did you like this article?  Continue reading on this topic:
Are You Managing Inventory or Is Inventory Managing You?

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Lisa Anderson, manufacturing and supply chain expert and president of LMA Consulting Group joins a panel of experts to discuss how to quickly unlock operating capital and fuel growth.

Click here for the full story.

The post MSDynamicsWorld: How to Build a Recession-Proof Strategy for Your Supply Chain appeared first on LMA-Consulting Group, a supply chain consulting firm.

Originally published in Netstock, July 2022.

How much capital do you have invested in the wrong products?

As customer demand slows down and suppliers remain unreliable, making the right decisions on what products to forecast or manufacture today can impact your profit margins and leave you with rising operating costs.

If you’re feeling the squeeze, tune into our panel of supply chain experts, including Lisa Anderson of LMA Consulting and Seth Ellertson of Net at Work, as they share practical insights on how your business can quickly unlock operating capital and fuel growth.

They discussed key tips on how to: 

• Classify your inventory and reduce inventory holding costs
• Measure supplier performance and manage lead times
• Run a healthy S&OP process and align supply with demand
• Review your tools to minimize risk and improve demand planning 

Click here to watch the webinar replay.

The post Building a Recession-proof Strategy for Your Supply Chain appeared first on LMA-Consulting Group, a supply chain consulting firm.

The post Inflation, Deflation, What to Do in the Supply Chain? appeared first on LMA-Consulting Group, a supply chain consulting firm.

Manufacturers are experiencing continued inflationary pressures threatening customer service and profit margins with record-breaking price increases and lack of material availability.  To add fuel to the fire, they are also starting to worry about preparing for a potential recession. It is becoming increasingly difficult to navigate these volatile times, and the most successful are not doing it alone. Instead, they are pursuing collaborative programs with supply chain partners. What is clear is that there will be more winners and losers created than at any other time in history. Thus, it is worth figuring out how to work with your supply chain partners to ensure mutual success rather than mutual demise.

First, it makes sense to evaluate your supply chain partners – both customers and suppliers. Most executives are reshoring, nearshoring, and reallocating capacity in their supply chain, and so the supply chain will continue to evolve. However, as the pandemic has proven, we are only as strong as our weakest link, and so we must be vigilant in selecting our supply chain partners and change them if needed. Don’t simply assume that your current partners are prepared for what’s ahead. Navigating both inflation and deflation is not for the faint of heart. Only the most action-oriented, innovative, and collaborative will thrive. Thus, assess your situation and be deliberate in your choices.

Once you have strong partners, turn your attention to how to work together to achieve dramatic results. One successful approach is to roll out a collaborative ordering process, also known as vendor managed inventory (VMI). For example, when working with an aerospace and defense company that supplied controls for the cockpit, we partnered with our client to implement and upgrade VMI. We partnered with our client’s customers (such as Boeing) to determine what to send to their locations for them. We were able to improve service to Boeing and maintain high OTIF (on-time-in-full) levels while eliminating their cost of ordering and achieving their inventory level targets. From the manufacturer’s perspective, they were able to expand business by achieving the top supplier status. Additionally, they were able to improve margins and working capital by better managing inventory and costs with visibility into their supply chain.

In another example, a specialized distributor of bearings used VMI to manage their customer’s inventory for them. Their customer was a steel manufacturer, and so although bearings were not significant in price as compared with the rest of their raw materials, they were critical in keeping the steel mill running. Thus, this value-added service became the key reason the steel manufacturer considered the bearing supplier as strategic and vital through both inflationary and deflationary times.

From the supplier point-of-view, an outdoor lighting manufacturer used a vendor managed inventory program with its suppliers. Instead of hiring planners to determine how many components to keep on hand with limited space, they asked their supplier to manage it for them. The manufacturer always had the appropriate stock to supply the line, and they never ran out. Their suppliers became integral links in the supply chain and part of a collaborative S&OP process (Sales & Operations Planning, also known as SIOP for Sales, Inventory, Operations planning), resulting in mutual business growth and success.

As manufacturers focus on collaborative supply chain partnerships and programs such as VMI, they are creating unique value in their supply chain. To thrive during inflation and deflationary times, it is important to be ready to pivot quickly with changing conditions. Additionally, by partnering with their end-to-end supply chain, these manufacturers create sustainable, profitable growth for mutual success.

As originally published in Brushware Magazine on July-August, 2022

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