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It's that time of the month when manufacturers, supply chain experts, and economists ready themselves for the news: Did the sector grow, shrink, or hold steady?
By all signs, May was a contraction month as manufacturing slowed globally. A slowdown in Asian growth, high input prices, lower demand in the US, inventory adjustments, and supply chain disruptions from the tsunami disaster in Japan cast shadows over most regional Purchasing Managers' Indexes (PMIs), according to news reports.
Following the sun, most parts of Asia that matter to the high-tech industry reported lukewarm results Wednesday. In China, the PMI fell to 52.0 in May from 52.9 in April, according to a Wall Street Journal report. While the figure is above 50 — indicating continued expansion — May's decline is the second straight month growth has slowed. Taiwan's PMI also fell, but remained above the 50 mark, and in South Korea, manufacturing growth fell to its slowest pace in six months.
The Financial Times reported that the pace of India's manufacturing growth “moderated slightly,” mostly in response to recent interest rate increases designed to curb inflation.
On the upside, tsunami-beaten Japan had a better month. The country's PMI strengthened to 51.3 from 45.7 the previous month, “signaling one of the largest month-on-month improvements since the index was first compiled in 2001,” according to the same FT article.
In Europe, the news had a depressing feel. Reuters reported Tuesday that preliminary euro-zone manufacturing data for May posted its biggest one-month fall since the collapse of Lehman Brothers in 2008. A follow-up WSJ account pointed out how the euro region's strongest nations fared: Germany's manufacturing activity grew strongly in May, but at the slowest rate for seven months; Italian manufacturing grew at the weakest pace for six months; and France slowed to a four-month low.
In the US, the pace of manufacturing growth slowed to its lowest level in more than one and a half years. The PMI of national factory activity fell to 53.5 in May from 60.4 the month before. Again, while it's above 50 and marks the 22nd consecutive month of expansion, it's far lower than expectations. On average, economists expected this month's number to come in around 57.7, according to Reuters.
“Slower growth in new orders and production are the primary contributors to this month's lower PMI reading. Manufacturing employment continues to show good momentum for the year, as the Employment Index registered 58.2 percent, which is 4.5 percentage points lower than the 62.7 percent reported in April. Manufacturers continue to experience significant cost pressures from commodities and other inputs,” Bradley J. Holcomb, chair of ISM's Manufacturing Business Survey Committee, said in a press release.
Personally, I've always wondered how much weight these reports (manufacturing indexes, pricing data, consumer confidence, employment figures, etc.) carry. I'm not sure any one of them tells a complete story. Collectively, however, they do provide a clearer snapshot of a moment in time. There was a recession, an earthquake, some other big news event, and for this period in time there was a reactionary kind of ebb or flow that moved the needle up or down. But, even so, it seems to be a static picture of past activity.
Where I think these reports offer the most help is in tracking patterns over time and planning future activity against these anticipated patterns. So, what patterns do you see in this latest round of numbers? What’s your crystal ball revealing? Is this month’s dip a temporary correction? Or are some of the recovery drivers we’ve been banking on, like ongoing strong growth in China, India and Germany, really cooling down? What kind of manufacturing environment are you planning for during the last two quarters of this year?
I am in the semicon business and Q1 was not a good quarter. Even though direct sales to Japan account for a small portion of our revenue I was surprised by the scale of the knock on effect of the earthquake and tsunami to our other larger Asia customers with its subsequent impact on our own numbers. Q2 is looking up a bit but the outlook remains cloudy as it has been for some time. With the recent news of some Scandinavian countries dipping back in to recession I fear that we are far from being out of the woods yet.
One of the things I've taken from that report is that the numbers might not have met expectations, but they are overall still improving. I feel that there was a sort of market correction going on as production got ramped up following the exiting recession. The months of April and May were very busy worldwide with disasters, conflicts, and the exchanges. All of this causes emotions to run amuck and ultimately always affects production, sales, and purchasing. As long as we are seeing overall growth the market is looking bright.
I wonder if there are stats around that show how many people put in a claim on a warranty versus how many people just didn't bother and either fixed the problems themselves or replaced the product. Some warranty are rather sneaky in their wording so that you buy the product thinking everything is covered and then find out that what you want to claim is excluded for some reason. Also when you have coverage for parts but have to pay for labor, it does not necessarily help you much.
“On the upside, tsunami-beaten Japan had a better month. The country's PMI strengthened to 51.3 from 45.7 the previous month”
Jennifer, Surprised to know that Japan's PMI strengthened, when all other countries PMI weakened. Any particular reason for this strength ?
Ariella, your comments are exactly right. Many warranties aren't spelled out without using some loopholes. It seems like today many products have become throw away products. If something goes wrong with them, it is cheaper for you to throw them away and buy a new one rather than paying to repair it. This even includes something’s covered under warranties. I personally have at least 2 companies that I won't buy their products anymore after dealing with their warranty departments and their contradictive statements. That is definitely a few cases where brand recognition comes into play.
Tiriapur: Japan's PMI – Here's one of the better explanations I can find.
“PMI survey data pointed to a welcome rebound in Japanese manufacturing activity in May, as a sharp easing in supply chain pressures enabled firms to restart production lines following the disruption caused by March's earthquake and tsunami,” said Alex Hamilton, an economist at Markit. ( From Reuters, http://www.reuters.com/article/2011/05/30/japan-economy-pmi-idUST9E7GG00P20110530)
FLYINGSCOT: Thanks for honesty and candid outlook. Living in Europe, I'm also interesting how lots of things shake out in the next couple of quarters. There is quite a big gap between how countries are faring post-recession. I know Spain, where I'm based, is also far from being out of the woods, too.
Jay_Bond: “All of this causes emotions to run amuck and ultimately always affects production, sales, and purchasing.” – You're exactly right. It's amazing that we may not be able to ever get away from this bullwhip effect where things are often out of whack for good or for bad.
In the semiconductor industry we measure warranty performance in terms of number of field returns and time to respond successfully to the satisfaction of the customer after an issue. Our customers keep similar metrics of our warranty performance which they then use to rank their suppliers with the worst performers being removed from the approved vendor list. This then means we cannot sell to them anymore. An interesting observation is I have seen companies with poor quality products beat out those with fairly high quality products because the former was much quicker to resolve the customers warranty issue eg. a customer could be a lot happier if it had 10 warranty claims that were fixed immediately versus 1 warranty claim that took ages to resolve. Something to ponder when developing a warranty strategy for your own company.
Ariela, you are right. I realize a few times there is always fine print in the warranty which we almost never bother to read. What people care most about warranty? I guess it is the duration, i.e. how many years the product is covered.
flyingscot, what you report indicates that customer service really is key in retaining loyalty. I know that I get very annoyed when I find that a place does not live up to the guarantees it proclaims. That's why they like to keep loopholes that are not spelled out, but sometimes they just don't live up to their guarantees even without loopholes. I remember contacting an online retailer who had the “guaranteed lowest price.” I told him that I found the exact same product at another site for less. The manager didn't offer to beat it or even to meet. Instead, he toldme I should buy it from the other place. So much for promises.
Flying Scot–that is an intersting point–lower-quality goods doing better because the warranty response is more prompt. An example of warranty practices being a competitive advnatge, much as he supply chian can be when well executed.
Ariella:
I agree with you on that. Left to me i don,t think there is anything called warranty.While it is not available on some products, some manufacturers or stores dont even offer it, the moment what you bought worked well at the point of purchased,that is all. But some times you just arrive from the store and the gadget you bought few minutes ago will not come on and you have to return it all for you to pay for the repair.
jbond:
you are right, i think the warranty stuff has become a bait more that a customer care
That is true but I think any company would have done the same just to gain ground in the market and climb up the ladder.
In cases like that, Adeniji, most reputable stores will take the product back and at least offer you an exchange. You just have to push a bit for it sometimes. It happened that I once purchased a digital camera from Office Max, and the hinge over the memory card broke when I put it in. I brought it back. The store clerk said that their policy was not to offer a refund on anything that was opened, but they coudl offer an exchange. I explained that I didn't want an exchange because the camera's design appeared flawed to me. I also pointed out that I could either circumvent the rule by taking the exchange and then returning the sealed camera or just honestly get a my refund credited on the open one. The store manager understood my position and granted the refund.
Barbara,
Can you throw some light on Warranty Management Capability Maturity Model. What are important input parameters to this model ? Is the model currenly available or IDC is still working on the model ?
Hi–the model operates like a SCORE model and is a type of self-assessment tool by which compnaies can idenitfy their warranty porcess and then identify areas for self-improvement. I guess another term would be a benchmarking tool. IDC is currently working with a Warranty Association group to make the tool available for free on the members' website. I'm not sure if it is avaialble for download yet–i think IDC is giving warranty-industry associations right of first refusal.