As a follow up to survey results released on March 12 and April 14, today the Institute for Supply Management® (ISM®) released its third wave of research on COVID-19 impacts on businesses and their supply chains. Insights reflect input gathered by ISM® primarily from U.S.-based respondents between May 7 to May 25.
Ninety-seven percent of respondents report that their organizations have been or will be impacted by the coronavirus. Survey results note that more than three-quarters (76%) of respondents report reduced revenue targets of 23 percent on average, with 61% reporting a 35 percent reduction, on average, in CAPEX plans. Only the Finance & Insurance subsector did not report an expectation of reduced revenue.
The majority (81%) reported that demand for their products has decreased, on average 15 percent, however, four sectors did report higher demand: Health Care & Social Assistance (+13%), Finance & Insurance (+7%), Food, Beverage & Tobacco Products (+5%), and Computer & Electronic Products (+3%).
“Overall, the data indicate that companies have responded to the pandemic disruption by paying much closer attention to their supply base – reporting increasing communication with existing suppliers while diversifying risk by qualifying alternate and/or additional suppliers,” said Thomas W. Derry, Chief Executive Officer of ISM. “Firms are also mitigating risk by carrying more inventory as a buffer against disruption.”
In early April, 95 percent believed their organization would experience some impact due to COVID-19 disruptions. By the end of May, this increased to 97 percent of organizations who will be or have already been impacted by coronavirus supply chain disruptions.
Severe supply chain disruptions were experienced in multiple regions to varying degrees, but, as of this most recent survey, had decreased in Japan and Korea. By the end of March, severe disruptions were being reported in North America (9% of respondents for U.S. supply chains, 6% of respondents for supply chains elsewhere in North America), Japan and Korea (by 17% of respondents for each), Europe (by 24% of respondents) and particularly China (by 38% of respondents). By the end of May, severe disruptions were being reported in North America (15% of respondents for U.S. supply chains, 15% for supply chains in Mexico and 10% in Canada), Japan by 15% of respondents and Korea 14% of respondents, Europe (by 26% of respondents) and particularly China (by 36% of respondents).
“However, despite these proactive measures, confidence in the outlook for the end of 2020 has declined, as an increasing majority of firms now expect moderate to severe impact on operations in the third and fourth quarters of 2020,” said Derry.
As the virus’ impacts continue, global and domestic U.S. organizations are reporting the following primary supply chain impacts.
Lead Times
- Average lead times for inputs have improved in most regions compared to the end of March and are less than twice as long as compared to “normal” operations, for Japan (195%), Europe (195%) and domestically sourced inputs (179%). China (215%) and Korea (200%) are still at or above twice as long as “normal.”
- Right now, compared to the end of 2019, 77% of respondents report that lead times for inputs from China have pushed out. Eighty-three percent report longer lead times for European inputs and between 57-69% report lengthening lead times for inputs sourced from North American countries.
- During the third quarter, 40% of respondents expect lead times to lengthen for U.S. inputs and 28% of respondents expect longer lead times from Canadian suppliers and 39% expect longer lead times from Mexico. Europe is expected to be most impacted, with 50% of respondents expecting longer lead times for European inputs.
Manufacturing Capacity
- Domestic manufacturing is operating at 74% of normal capacity. Chinese manufacturing is at 76% and European manufacturing is at more than half at 64%.
Inventory
- Firms report that operations in North America have or are likely to have inventory to support current operations, but confidence has declined (U.S., 64%; Mexico, 49%; and Canada, 55%).
- Except for Japan and Korea, a majority of firms believe they will have sufficient inventory for Q4. As of the third round of research, uncertainty has decreased as to whether inventory will be sufficient to support domestic and global operations.
- Eighty-one percent of respondents say their firms’ input inventories have been adjusted and almost one-half are holding more than usual.
Headcount
- In an already tight talent market, a many respondents (47%) report that their organizations will likely delay hiring this quarter, 31% will reduce hours, and 27% will reduce headcount.
- In late February, respondents reported that staffing levels in China stood at 56% of normal. By May, levels had recovered to 88% of normal.
Reshoring & Nearshoring
- Most firms (56%) are not considering reshoring or nearshoring.
- Twenty percent of firms are planning or have begun to reshore or nearshore some operations.
- Four percent are planning or have begun to reshore or nearshore most operations.
The survey’s 676 respondents largely represent U.S. manufacturing (58%) and non-manufacturing (42%) organizations. Miscellaneous Manufacturing (11%); Transportation Equipment (7%); Fabricated Metal Products (6%); Electrical Equipment, Appliances & Components (6%); and Machinery (6%) were the top manufacturing sub-sectors. Health Care & Social Assistance (7%), Other Services (6%), and Professional, Scientific & Technical Services (5%) were the top three non-manufacturing sectors represented by respondents.
Eighty-five percent of the respondents come from organizations with annual revenues of less than US$10 billion, with 49% under US$500 million. Respondent roles range from emerging practitioner (4%), to chief procurement officer (5%), with 77 percent being experienced practitioners, managers, directors and vice presidents in a supply chain management role.
To access ISM’s dedicated resources and research regarding COVID-19, please visit weareism.org/coronavirus-ism.html.
