December 2nd, 2009 by Alex Coté
Last month we reported a break from a normal, historical seasonal cycle in the Cortera Supply Chain Index – payments between stakeholders had slowed after 4 months of improving conditions — and posed the question: Why the early jump in the SCI? Normally we see this kind of jump in the November and December months as companies build inventories and delay payments—but in this kind of recession/nascent recovery norms are not the norm and the index moved two months early. This month our November 2009 Report shows an improving picture with the index hitting its best numbers in 2009. This type of spike downward is consistent with our theory that a shift has occurred and retailers pushed up their orders for an early holiday season and have turned those inventories quickly enabling cash to flow back through the supply chain. In a typical cycle, we would see this occur in January 2010, but again this is not expected to be a normal holiday season, as many recent reports have pointed out.
The latest Institute of Supply Management manufacturing index fell to 53.6 this month, but is still above the critical 50 level meaning more firms are growing than contracting. Within this data it is important to note that inventory portion of the index dropped in October meaning that businesses efficiently sold their inventories. This is obviously a good sign as we continue into the holiday season. Going forward, we are going to closely watch to see what our December numbers show. It is certainly possible that we’ll see another spike upward as businesses replenish their reduced inventories for a second wave of holiday shopping and again delay payments like in our October report. If not, shoppers may see more empty shelves and less post-holiday sales than in the past as more retailers conservatively manage their inventories tightly, following the painful lessons of 2008.
Are we seeing the impact on the supply chain of low inventory, early promotion strategy – frontloading the holiday shopping cycle? Or will we see the impact of a new wait-and-see approach to gauging shoppers’ unpredictable confidence and comfort level? December should go a long way toward answering those questions.
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