As the long-time head of the Institute for Supply Management’s Manufacturing Business Survey Committee, and a veteran manufacturing executive, Norbert Ore has witnessed dramatic change in the manufacturing sector: the rebound of an industry once left for dead, the role technology has played in reviving that industry, and, of course, the all-too-well publicized issue of outsourcing, among other things.
One thing hasn’t changed.
“I think there’s no doubt that the business cycle works,” Ore said in a recent interview with Manufacturing.net.Ore is the keeper of one of the manufacturing industry’s most-watched barometers: the Manufacturing ISM Report on Business. Every month the industry, along with Wall Street, anxiously awaits the latest reading on the health of manufacturers, and attempts to divine from the numbers where manufacturing might be headed. (Except for a four-year interruption during World War II - because of the difficulty of businesses operating under full-scale war conditions - the report has been published since 1931.) The latest ISM report, for instance, came in softer than those in the recent past, and left many in the industry wondering exactly how big of a slowdown manufacturers might be facing.
The so-called PMI Index slipped to 54.4 in May, from April’s 57.3 reading. The new orders, production, and employment components all fell, while the prices paid component grew by more than 5%.
“The most recent month really wasn’t a surprise, as it continued the trend of slower growth in new orders,” he said. “New orders are the life blood of our index and will determine the direction of things in every instance. And (in May) we had a fairly precipitous drop in terms of the rate of growth.”
Since that report, the U.S. economy has shown further signs of a slowdown, albeit from fairly lofty levels, and the focus within the manufacturing sector on the next ISM report on July 3 will be intense.
U.S. Manufacturers Need To Keep Creating
One phenomenon Ore has noticed in the current growth cycle is many basic materials companies, those involved in commodities in particular, have not been willing to expand in any substantial way, having been burned with overcapacity so many times in the past. The global, fast-paced nature of the economy today makes it even harder to gauge when to sit on the sidelines and when to expand.
While acknowledging that outsourcing is a major hurdle for manufacturers, Ore also buys into the notion of “insourcing.” That is, the idea that there are some things that are best done in the U.S.
Ore says the U.S. can also address the broader challenge of outsourcing by simply continuing to create better than the rest of the world.
“What really works for us is that our culture, our history and our politics are all aligned in a way that we can respond to changes in markets faster than anybody else,” he said. “As long as we maintain that type of mobility we’re going to stay on top in the more sophisticated items.”
“I would use the example of something like appliances,” he said. “When you come up with a custom-designed kitchen cooktop that is an integral part of the kitchen and is built into the plans, we don’t have to worry about losing that. In fact, the Chinese companies come here to build it.”Ore believes another area of manufacturing strength rests in the buying process.
“We’re very sophisticated in procurement – we have well-educated buyers, MBAs in finance, and on top of that we have the best tool that’s ever come about for a buyer - the Internet,” he said. “I always thought the seller had a significant advantage given their marketing departments, but the Internet has come along and totally negated that advantage. Procurement has never had anywhere near the degree of visibility as it has today.”
Indeed, demand for supply management talent is currently so great that it’s difficult to fill all the jobs. That said, Ore believes that the quality of talent finding its way into the procurement arena has never been stronger.
Ore does believe the industry has made dramatic strides in the use of technology, but thinks there’s more to be done. In fact, he often spoke to former Federal Reserve Chairman Alan Greenspan about the issue of how well the manufacturing industry was utilizing technology, and the topic is now addressed in other ISM surveys.
“We’ve made great progress, but we’re no closer to the finish line than we were years ago,” Ore said. “Most companies have several islands of technical proficiency, but not many have all of it covered.”
“What we are seeing more and more is people coming from other disciplines, as we’ve recognized that procurement is not so much a function as it is a process,” he said. “It has lent itself to people with great analytical skill, project management and people skills, and in most cases companies are willing to look at those people and feel that if they have those skills they can succeed in procurement.”