Manufacturers Still Experiencing Supply Chain Disruptions

However the 40% that stated they'd experienced disruptions is a significant drop from the previous quarter (51%).

For the fifth straight quarter, more than one-third of North American manufacturers responding to the MFGWatch survey said that they've experienced a significant supply chain disruption in the past three months -- one that has forced the engagement of an alternative source. However the number of respondents indicating they've experienced disruptions dropped to 40% from 51% in the previous quarter.

"North American manufacturers seem to be at once optimistic over current business conditions, but skeptical about 2011," said Mitch Free, CEO of MFG.com. "This uncertainty is most glaring in the anemic employment activity among small and midsized manufacturers, while at the same time seeing significantly improved business conditions. Also, the drop in reports of supply chain disruptions is compelling. While the most recent survey shows a decline of over 10% of companies reporting disruptions (40% as opposed to 51% in the past quarter), the 40% matches the levels from the same quarter of 2009. To me, this says that the willingness to accept or work around disruptions may increase seasonally, in this case during production for holiday selling cycles."

Other findings include:

  • North American buyers in Q3 '10 have shown some improved employment activity. 26% of large manufacturers state that they have increased employment; much more than the 18% that in the previous quarter had indicated they would add employees. Conversely, while the 21% that had indicated they had reduced staffs is down slightly from the previous quarter, it is still much higher than those that anticipated any retraction (8%).
  • For the first time since Q3 '09, there are fewer large manufacturers in North America that have experienced a significant supply chain disruption than from the previous quarter. The 40% that stated they'd experienced those disruptions represents a significant drop from the previous quarter (51%); however, 40% still represents a significant level of risk and pressure on spend and supply chain management resources across industries.
  • The number of large manufacturers that have repatriated production from low-cost countries -- 19% -- is only slightly less than those from the previous quarter (21%). However, while this percentage still represents a significant increase from Q1 10 (12%), recent trade and other economic policies put in place may impact these figures in the first 2 quarters of '11 and beyond.
  • North American suppliers (small/medium manufacturers) reported a higher contraction rate of business conditions, with 19% stating theyd experienced less business in Q3 '10. That number is up from 14% in Q2 '10, and represents a significant contraction in the North American manufacturing sector. Also, while those reporting growth in their businesses remained flat from Q2 10 (40%), that number greatly exceeds those that anticipated growth from the previous quarter (27%).
  • In alignment with contracting business conditions, small/medium manufacturers state that they are not hiring. Employment in this sector remained virtually the same in Q3 10, with 26% adding jobs (compared with 29% in the previous quarter) and 18% reducing headcount in both Q2 and Q3. However realities trumped expectations, as only 5% predicted staff reductions prior to this most recent MFGWatch survey.
  • Suppliers in Q3 '10 reported less activity from larger sourcing manufacturers under duress from supply chain disruptions than in the previous quarter (37% and 42% respectively). These responses are in line with large manufacturers' lower reported incidents of actual disruptions. However, the most recent 37% virtually matches the levels reported in the same quarter of '09.
  • Fewer North American OEMs & large manufacturers say that they expect to research bringing production closer to North America in the coming months (33%, compared to 38% in Q2 '0). While this drop represents the most dramatic shift of the year, the 33% is still larger than the 31% of respondents seen in Q1 '10.
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