The Institute for Supply Management is studying the effects that COVID-19 has had on supply lines and procurement world-wide They released their findings from their third survey on COVID-19-based industry disruptions today.
These results are based on insights gathered from primarily U.S.-based businesses between May 7th – May 25th.
Unsurprisingly, 97% of those that participated report that the coronavirus has impacted their organization already and that even if it hasn’t, they expect that the virus will impact them in the future. More than three-quarters of the respondents reported reduced revenue targets, with 61% saying they expect a 35% reduction. Of those that took the survey, 81% report an average of 15% reduced demand for their products. The only industries that didn’t see a reduction were Health Care & Social Assistance (+13%), Finance & Insurance (+7%), Food, Beverage & Tobacco Products (+5%), and Computer & Electronic Products (+3%). In fact, these four sectors reported increased demand.
“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 W. Derry, Chief Executive Officer of ISM. “Firms are also mitigating risk by carrying more inventory as a buffer against disruption.”
North American businesses were seeing severe supply line disruptions at the end of March. These numbers increased by the end of May across all regions. Domestic manufacturing is operating at 74% of normal capacity. Chinese manufacturing is at 76% and European manufacturing is at more than half at 64%.
“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.
Global and domestic U.S. businesses have reported the following supply chain impacts:
Lead Times
- 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.
- 77% of respondents report that lead times for inputs from China have pushed out, compared to the end of 2019. Eighty-three percent report longer lead times for European inputs and between 57-69% report lengthening lead times for inputs sourced from North American countries.
- During the third quarter, 40% of respondents expect lead times to lengthen for U.S. inputs and 28% of respondents expect longer lead times from Canadian suppliers and 39% expect longer lead times from Mexico. Europe is expected to be most impacted, with 50% of respondents expecting longer lead times for European inputs.
Inventory
- Firms report that operations in North America have or are likely to have inventory to support current operations, but confidence has declined.
- 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.
Headcount
- In an already tight talent market, (47%) report that their organizations will likely delay hiring this quarter, 31% will reduce hours, and 27% will reduce headcount.
- In late February, respondents reported that staffing levels in China stood at 56% of normal. By May, levels had recovered to 88% of normal.
Reshoring & Nearshoring
- Most firms (56%) 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 U.S. manufacturing (58%) and non-manufacturing (42%) organizations. Miscellaneous Manufacturing (11%); Transportation Equipment (7%); Fabricated Metal Products (6%); Electrical Equipment, Appliances & Components (6%); and Machinery (6%) were the top manufacturing sub-sectors. Health Care & Social Assistance (7%), Other Services (6%), and Professional, Scientific & Technical Services (5%) 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% under US$500 million. Respondent roles range from emerging practitioner (4%), to chief procurement officer (5%), with 77 percent being experienced practitioners, managers, directors and vice presidents in a supply chain management role.
To access ISM’s dedicated resources and research regarding COVID-19, please visit: https://weareism.org/coronavirus-ism.html.
