Retailer Daily

Quarterly Supply Chain Risk Update

While the prospects of an economic recovery are far from certain, the latest quarterly supply chain risk survey from AMR Research indicates a substantial number of retailers and manufacturers actually fear the impact a 2010 economic recovery could have on their supply chain operations. According to AMR Research’s most recent quarterly supply chain risk report of U.S. retail and manufacturing executives, 44% of respondents believe the recovery cycle is the biggest supply chain risk in 2010 because of potential commodity price increases, limited internal skills after workforce reductions, and problems meeting new demand with constrained capacity, low inventory, and transportation constraints. In contrast, 23% of respondents are worried that the recession will continue, resulting in weak customer demand. When asked to identify this quarter’s top supply chain risks, the first two of respondents’ top three responses were related to an economic recovery. In order they were supplier quality product failures (31%), commodity price volatility (30%), and intellectual property infringement (30%). Based on report results, the retail industry is beginning to anticipate that an economic recovery will start within the next few months. Recent signals from a number of public and private consumer and economic indices are decidedly mixed on what direction the economy is taking. The Conference Board Leading Economic Index (LEI) rose for the fifth straight month in August 2009. Combined with flat performance in the Conference Board Coincident Economic Index (CEI), this signals a possible bottoming out of the current U.S. economic recession. Interestingly, the largest positive contributor to the August LEI’s performance was the index of supplier deliveries (vendor performance). A few other forward-looking consumer indices also paint a somewhat optimistic picture of the direction of the U.S. economy. The Deloitte Consumer Spending Index, which attempts to track consumer cash flow as an indicator of future consumer spending, rose 23% in August 2009. The Conference Board Consumer Confidence Index jumped in August 2009 after falling for two straight months, largely due to improvements in the forward-looking Expectations Index. And the American Express Spending and Saving Tracker indicates a majority of consumers are likely to maintain or increase current spending levels in the next 30 days. However, the Consumer Reports Index, which tracks consumer financial and employment numbers to obtain an overall sense of consumer health, indicates that U.S. consumers are continuing to feel less secure about their financial situation. Recent government data supports this finding, as consumer credit and borrowing rates have been dropping sharply, spending and earning rates have been remaining almost flat while saving plummets, and the official unemployment rate (which only counts a fraction of the actual number of people out of work) has been creeping toward double digits. U.S. retail sales did increase 2.7% in August, although the short-term impact of the federal “Cash for Clunkers” car-buying incentive program and rising gasoline prices accounted for much of the increase. The August Consumer Price Index (CPI-U) further supports the notion that a spike in gasoline prices was more responsible for improved retail sales that month than increased consumer willingness to buy. The CPI-U shows that prices rose 0.4% during August, with a 9.1% jump in the cost of gasoline driving 80% of the overall increase.