There are a lot of questions about the U.S. economy right now, as different trade and tariff bills are proposed, and laws are set in motion. The most recent data from the Institute for Supply Chain Management, show that manufacturing production, including chemical manufacturing, is slowing down. The Purchasing Managers’ Index is currently at 52.1%, which is slightly down from what it was in April.
As this number nears closer to 50, red flags of a possible recession are beginning to raise. It’s important at times like this, for manufacturers and supply chain executives alike, to understand the factors that are impacting production—because we’ve seen this before: when the winds change, companies either prevail as leaders or fail as laggards. So, in this blog, we’ll discuss the factors contributing to slowed manufacturing production and their impact on transportation and logistics.
Imposed Tariffs on Chinese Imports
The trade war between the U.S. and China is escalating as each side imposes billions of dollars in tariffs on imported goods. The U.S. chemical industry, in particular, relies heavily on China for certain raw materials and chemical compounds that can’t be sourced from anywhere else.
With such significant tariffs being imposed or threatened, there are significant costs being added to the chemical industry’s supply chain on both the import and export side, forcing chemical manufacturers to ask themselves: how will we navigate around this obstacle in the near-term?
Global chemical companies, with operations all over the world, may have additional sourcing options to help them navigate the tariffs. But smaller chemical companies, with a more regional or domestic footprint, don’t have that flexibility and need to seek other ways to accommodate the increase.
Tight Labor Market
The tight labor market continues to hike wages in industries across the board. In the transportation industry, and due in large part to slowing manufacturing growth, the critical state of transport capacity of 2018 has somewhat softened. Yet compared to the past several years, it’s still constrained. This, plus the combination of increase wages, imposed tariffs and a possible recession, challenge manufacturers and supply chain executives, alike, to keep a close watch over their labor costs and budget.
Refused Recycled Plastics
For years, nearly 70% of the world’s plastic was sold to China to be recycled into new products. Last year however, China cut back on almost all imports of trash. Paying for recycling hasn’t been a cost that big U.S. manufacturing companies had to worry about, until now. The cost to ship waste hundreds of miles to a U.S. landfill is expensive, and as demand for the space increases, the cost for landfill space will rise.
How Companies Can Navigate These Factors
With these major, global issues converging, manufacturing companies are challenged with navigating the implications of slowed production and a possible recession. When a perfect storm like this hits, however, it can serve as a catalyst for improvement—separating leaders from laggards.
Right now, manufacturing companies must find an answer to the increased costs—do they pass the added costs onto customers; and if so, how much? Or, can they cut costs somewhere else? At the same time, these companies need to think about long-term strategies that will stabilize their bottom-line.
Differences Between Leaders and Laggards
Laggard-minded companies might address these concerns through layoffs and spending cuts. Leader-minded companies know that continued investment in certain areas will result in cost improvement and create a foundation for scalable growth. Leaders will take a critical look at their operations to identify ways to create leaner, smarter manufacturing and supply chain processes.
- Why are we still using paper-based processes?
- What manufacturing and supply chain processes can we automate?
- Where are we wasting resources in labor and transportation?
- How can we better utilize benchmarking to ensure optimal rates?
- Is the timing right for a rate procurement event?
- Can we strengthen any partnerships with third parties?
- How else can we use technology to increase efficiencies (e.g., TMS, Tracking, Analytics)?
Tempestuous times like this can be a catalyst for continuous improvement. Great companies are masters of their own destiny, and how well they weather the storm will separate those that prevail from those that fail.
With headlines changing daily about the trade war between the U.S. and China, it’s yet to be determined what the exact imposed tariffs will be. But with negotiations in the billions of dollars, it’s fair to assume there will be significant implications.
Ultimately, things can change very quickly, which means—when times are stable, companies need to be thinking about improvement, and when times are uncertain, they need to be thinking about improvement even more. And it makes sense, because improvement is the only road to success. To learn more about optimizing your supply chain, contact us.