What
type of environment will buyers be facing in 2014? By all indications, it will
be more of the same. Barring an economic upheaval, component supplies will be
adequate; prices should be stable; and demand will slowly increase.
According
to the Institute of Supply Management -- which surveys U.S. manufacturing and
purchasing executives on a monthly and semi-annual basis -- the
business outlook is positive
for 2014.
Overall manufacturing revenue is expected to grow by 4.4
percent in 2014, according to Bradley J. Holcomb, chair of the ISM Manufacturing
Business Survey Committee. Better yet, CFOs will be loosening up their
purse strings and increasing capital expenditures
by 8 percent in the
manufacturing sector. Depending on where you stand in the supply
chain, that could mean a long-awaited equipment upgrade or increased activity in
procurement.
Buyers
might also be getting help next year. The ISM expects hiring will pick up in
2014, and even though purchasing isn't specifically cited, new jobs will created be in
manufacturing. The actual numbers: employment in the manufacturing
sector will increase by 2.4 percent next year.
A
lot of what buyers will be doing next year will still be the basics: assessing
suppliers. One thing to keep an eye on, recommends EPS Contributing Editor
Douglas Alexander, is date codes. "Whenever there
are recurring failures of identical part number components, the supplier
correction action report should include not just the part number and quantity,
but be sure to record the date codes on the products being returned for the
corrective action analysis. Here is why: I have noted component failures where
only certain date codes of a product line failed in the field."
Another
basic Douglas pays attention to: book to bill ratios. When
you look at the same ratio on a quarterly or yearly basis, you can spot trends.
For instance, says Douglas, "If I have a yearly book-to-bill of 1.2:1, I am in
good shape and maintaining a strong backlog which may eventuate in an extended
product lead time until I can manage the necessary infrastructure growth. If my
book-to-bill is 0.8:1, then I have to tighten my spending belt. Eventually, my
billing will drop to my lower booking numbers; I am not growing. I am in fact
shrinking." So how does this impact purchasing?
If
sales are down and the book to bill is <1:1, you may want to adjust the terms
on your supplier contracts, Douglas recommends. "I may have to decide with
Accounts Payables who is going to get paid on time and which vendors I may have
to leave twisting in the wind. I may decide to build less for safety inventory
or adjust my build-to-stock quantity and only build to order. When the
book-to-bill ratio changes, the materials strategy needs to be looked at for a
possible change. This implies that the book-to-bill numbers are made known to
purchasing management and that the company has a way of adjusting procedures to
guarantee that the economics track to ensure the short and long term health of
the company."
Here's
hoping for a healthy -- and happy -- 2014.
Barbara
Jorgensen
EPS
Managing Editor
barbara.jorgensen@epsnewsonline.com
