The NEVI Purchasing Managers' Index is now experiencing a great moment! After all, this is the 200th report of this popular economic gauge! It would be nice if we also had something special to report at that time. Is that the case? Yes indeed!
The 200th NEVI PMI® rose from 60.4 in October to a high of 62.4 in November. This is the highest figure since the start of this survey in 2000 and far surpasses the previous record of 60.7 in February 2011. Increases in four of the five PMI components caused the rise in the main index. The sub-indexes for production volume (61.5), employment (60.6) and stock of purchased materials (57.2) also reached record levels.
Production increased at an unprecedented rate due to a sharp rise in new orders received. That sub-index reached a shared second place since the start of this survey in March 2000 and was only slightly lower than the record level of February 2011. The rise in new export orders received was the largest since February 2011. Companies significantly expanded their procurement activities, leading to a record increase in the stock of purchased materials. This resulted in another major extension of delivery times: the largest in over a decade and a half. Employment growth reached record levels. Purchasing prices rose to the largest extent since February and selling price inflation reached its highest level in eight months.
Let's analyse this a little deeper:
- The higher production volume is explained by the still (for 53 months now) rising demand from both home and abroad. There is high demand for high-tech investment goods from China, North and South America and also Europe. The Netherlands has exceptional high-tech companies, whose technical solutions are in high demand.
- Full order books explain the high utilisation rate in our industry. More production means more employment. With the supply of qualified staff sharply decreasing, companies are offering employees permanent contracts (ASML leading the way).
- More production also means more purchasing of basic materials and components. The sharp purchase price increases of metals, plastics and paper lead to speculation. Buyers buy more than necessary to avoid paying more later. This explains the record value of the index purchased materials.
Manufacturing industry is going to finish 2017 strong. And what is the outlook for 2018? Without a doubt, good. But we will have to watch out for overheating. Inflation will start to rise sharply, due to higher purchasing prices and wages. That will start to dampen demand. How soon that will happen? There is no telling. 2018 will be a very interesting year.
Three risks for 2018:
Increasing tension in supply chains, the end of the ECB's monetary easing and the Brexit implications for the Netherlands. Will British companies look for suppliers at home? For a country like the Netherlands that lives mainly on exports and transport, this will have relatively large consequences. And anyway, a Brexit (hard or soft) means a substantial decline in growth.
Crucial role for procurement
For 2018, it is important for companies to start reading the economy better, predicting what might happen in the future, and how to anticipate it. Because growth can indeed be achieved without the direct intervention of external capital. But then (larger) SMEs need to know how to extract value from the chain, from their own business. In many cases, when an SME wants to realise growth, it will mainly try to increase turnover by focusing more on the sales side. What the possibilities are on the procurement side often remains underexposed. In many cases, the approach is still classical and 'buying as sharply as possible' is the main, if not only, focus. In my opinion, this is where SMEs miss opportunities.
With the growing demand for high-tech materials and China's dominant(er) role, companies need to pay more attention to Supply Risk Management. Companies need to stay alert and make use of the knowledge from procurement when it comes to the security of supply of raw materials. But also deploying innovative, alternative suppliers that give you access to new technologies, raw materials and thus enable new business models for your organisation.
The Commodity Scanner, which will come out of the pilot phase on 14 December by the Ministry of Economic Affairs and which I, from NEVI, also collaborated on, is going to offer companies a lot of value. I sincerely hope that FME and Metaalunie members will actively use this raw materials scanner. After all, this makes it possible to see which critical raw materials are in a product or semi-finished product of yours and offers practical solutions to deal with the risks. Given what's coming our way in 2018, this is a great gift for the holidays!
