Despite disruptions, supply chain professionals are optimistic about the remainder of 2021
Despite a rocky start to the year, 66% of companies feel that business will be better during the second half of 2021
The Institute for Supply Management (ISM) has found that 66% of organisations feels better about business overall over the next year, marking an improvement in sentiment on results released in March, April and July 2020.
The survey notes that demand for products and/or services is forecast to increase 10% in 2021 compared to 2020 actuals.
Revenue budgets will reportedly increase by 7.8% and CAPEX budgets are expected to increase this year by 4%.
However, for 2021, respondents have mentioned concern about risk to suppliers, shipment delays and remote work issues. Thirty percent report concern over increased risk to Tier-1 suppliers, more than half (56%) are concerned over delays in shipment and supply, 31% report a concern over managing remote working, and 21% report needing to invest more in remote-working infrastructure.
The report also analysed other areas of difficulty, investigating the changes over the past 18 months.
In July 2020, many regions reported an increase in severe supply chain disruptions. However, only 36% of respondents reported severe disruptions in China, a small improvement over what was reported in April 2020 research (38%).
By the middle of January 2021, severe disruptions reduced in severity in all regions. In North America, severe supply chain disruptions were reported by 10% of respondents for the U.S, 8% of respondents for Mexico, and 7% of respondents for Canada. Outside of North America, severe supply chain disruptions were reported by 28% of respondents for China, 15% of respondents for Europe, 10% of respondents for Japan, and 9% of respondents for Korea.
Average lead times for delayed inputs have improved in most regions compared to this time last year. However they remain slightly less than twice as long as ‘normal’ operations. In the most recent report, Europe lead times were at 193% their usual level, Japan at 190%, Korea 189% and domestically sourced inputs at 177%. China is still at or above twice as long, at 202%.
Compared to the end of 2020, 64% of respondents also report that lead times from China have pushed out. 68% report longer lead times for European inputs and between 40-54% report lengthening lead times for inputs sourced from North American countries.
Eleven percent of respondents expect longer lead times for US inputs in Q4 2021, 8% expect longer lead times from Canadian suppliers and 10% from Mexico. Europe is expected to be the most impacted, with 20% of respondents expecting longer lead times for European inputs.
Domestic manufacturing is currently operating at 87% of normal capacity, with Chinese manufacturing at 86% and European manufacturing at 76%.
Almost all (93%) of the firms report that they expect to have sufficient inventory on hand at North American facilities in Q4 2021 to support operations. This was at 91% for Canadian operations, and 87% for Mexico. This was also high for other regions, including the Middle East at 96%, Japan 91%, Europe 89%, Korea 88%, China 85% and India 81%.
Eighty-two percent of respondents also say their firms’ input inventories have been adjusted, with 56% holding more than usual – either intentionally or unintentionally.
During Q2 2021, 27% of respondents report that their organisations will likely delay hiring, 9% will reduce hours, and 14% will reduce headcount. However, 25% anticipate a headcount increase. Staffing levels increased for North American respondents (U.S. 88%; Mexico 85%; Canada 87%). Europe (84%) and Japan (86%) also saw increases, with China (88%) and Korea (83%) remaining the same as at the end of July 2020. India reported staffing levels at 79% and the Middle East at 75% of normal levels.
"Around the globe, even with concerns around supplier risk, shipping delays and work from home challenges, companies are continuing to adapt to the changing environment created by the Covid-19 pandemic and feel bullish, particularly about the second half of 2021," said Thomas W. Derry, chief executive officer of ISM. "There is a strong positive sentiment that business activity will be substantially better than in 2020, and revenue, CAPEX and demand for products are all expected to increase this year. That said, supply constraints – notably in shipping and freight, scarcity of many raw materials and components, and a widely reported inability to hire qualified labour – are limiting the ability of some firms to take maximum advantage of the surge in aggregate demand."