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By the Numbers The Holiday Season got off to a stocking half-full AND half-empty start last week, with the release of a positive Federal Reserve Board report on economic activity and gloomy new numbers on the US Manufacturing Activity Index. The index, based on a monthly survey of industrial purchasing managers, fell to a 13-year low, which is seen, by some, as evidence that the economy is cooling as rapidly as the temperature in Poughkeepsie New York. At the same time, another measure of the manufacturing sector, the Institute for Supply Management's Index of National Manufacturing, climbed to 57.8 (50 is the median between growth and decline). It’s the 18th consecutive month of growth in the sector and, generally, it means all is well in the sector. Which figures truly represent the situation? Why, both, of course. We have a mixed bag of growth and decline which is driven by consumers. American consumers are driving-up the manufacturing index by spending like they’re on shore leave. Spending was up a solid .7 percent in October, exceeding analysts' predictions and fueling optimism that this Christmas retail period will be better than average. Sociologists should also be interested in the spending trend, not just because it means they too will receive presents this year, but also because the savings rate has fallen to 0.2 percent. Drew Matus, U.S. financial markets economist at Lehman Brothers, puts 0.2 percent into this perspective…"(It) means for a person earning $40,000 per year they are saving $80. Put another way, that person is saving a little over $1.50 per week." Interpretation of the savings numbers can go either way, much like marriage ceremonies in Canada. Optimists feel that consumers have a high level of confidence in the economy and significant job security, so they feel there is no need to save. Pessimists feel that those who were saving for a rainy day are now spending because the rainy day has arrived. However you interpret it, $1.50 a week is incredibly low. Speaking of a buck-fifty, hourly wage workers at Wal-Mart are probably not getting the hours they had hoped for this season. The Fed report on economic activity indicates that bigger ticket items are driving their numbers and smaller ticket items are slow moving. The theory is that lower income earners are more seriously affected by higher energy prices and so they are unable to buy as many $5.99 T-shirts and $200 TVs. Another finding in the supply management index report was that new orders, inventories and employment increased, along with prices paid for commodities and other inputs. This is consistent with monthly reports from earlier this year, which have found that profitability is lower than it should be because of shortcomings with demand planning (DP) and supply chain management (SCM). As AMR Research’s Debra Hofman pointed out in her presentation at the recent Adexa Customer Summit, better DP and SCM typically results in millions of dollars in increased profits and earnings per share. Hofman also observed that most manufacturing industry executives have not yet connected the dots between operational and financial performance, however, in multiple reports and studies, AMR is certainly raising awareness of the connection. In fact, a new section of the AMR website has been dedicated to what the research firm calls “Demand Driven Supply Chain Networks,” (DDSN). You can visit the DDSN Resource Center to see reports and other information that quantifies supply chain performance in terms of market share and financial performance. Lower costs and increased operational efficiencies are still benefits of SCM and DP applications, but the greater value is in outpacing competitors and delivering higher returns to shareholders. This is also Adexa’s focus. If you’d like more information on the relationship between Adexa solutions, profitability and EPS, just drop us an email at info@adexa.com. << Previous Article Next Article >>
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