Hello, my name is Jim Tompkins and I am the CEO of Tompkins Associates and Tompkins International. I am pleased to be with you today to present our 3rd part of our 4th series of the Global Supply Chain Podcast.
This 4th series is taking a different view from the supply chain specific content of our first three series, and looks at a boarder subject that nevertheless has a major impact on us Supply Chain professionals. This broader subject is the Great Comeback.
The Great Comeback is my phrase for the recovery and return to prosperity in response to the economic meltdown we all have experienced over the last half of 2008 and the first four months of 2009.
In this four-part series I will be guiding you through the things you must do to be ready for your organization’s Great Comeback.
In the first two parts of this series, I covered why this topic is so important and the Great Comeback process. In this third installment, I will discuss the timing of the Great Comeback.
There are three topics I wish to cover in this podcast on the Great Comeback timing. The first is the recovery timeframe by industry. The second is the reality of the lead times to enhance your supply chain, and the third is the reality of your company’s 2010 budget cycle.
In the first podcast in this series, I discussed my view that the economists will tell us 2-3 months after half of the economy is in recovery and the other half has yet to bottom. Well guess what: Many economists are now saying the recovery has begun. Consider:
On May 19th an article in the Wall Street Journalsaid “At a recession’s end, news typically turns mixed as it has lately.” The article goes on to say “Recovery means different things to do different people. Economists expect that GDP will resume growing this summer. Also financial markets are pointing to recovery; investors are out of the panic mode.”
On May 21st an article on Moneycentral online entitled “The Recession? It’s Over, Says an Economist” said “We’ve seen the worst. The bottom is in.”
On May 21st an article in the Wall Street Journalentitled, “The Economy Shows Signs of Recovery” says “The conference board said its index of leading indicators rose 1% in April after 7 months of declines.”
In addition, the May consumer confidence index went up 14.1 points, the US leading indicators went up another 1%, ‘Help Wanted’ online ads went up 250,000 and CEO confidence went up by 6 points.
On June 25th the Wall Street Journal reported business spending is up. New orders for durable goods such as equipment and machines rose in May, the 3rd gain in four months and a very positive sign for the US economy.
On June 27th in the Wall Street Journal it said, “US consumers are saving more of their incomes than any time since 1993, a major shift towards frugality that’s expected to be one of the lasting effects of this deep , lengthy recession. Still consumer sentiment rose for the 5th month in a row in June to its highest level since February of 2008.
On July 12th macroeconomic advisors revised their anticipated 1.6% 2nd quarter drop in GDP to report an expected 2nd quarter gain of GDP of .2%. That’s a wing of 1.8%. Not quite so positive, but RDQ Economics, Morgan Stanley, Goldman Sachs, and Global Insight all also revised upwards their GDP numbers for the 2nd quarter.
On July 23rd the Dow broke through the 9000 barrier and a week later on July 28th there were predictions that the Dow would be over 10,000 by year’s end.
So although unemployment in total will continue to increase through the end of the year, it is clear the overall economy has turned and many sectors are seeing a good taste of their return to profitability and prosperity.
Lastly, allow me to quote a conversation I had in Washington, DC last week. I do not believe the gentleman I spoke to was educated as an economist, but I do think he had a lot of wisdom and experience when it comes to the economy.
I was leaving the Department of Treasury, and was heading over to the Ronald Reagan building. It began when I entered the gentleman’s taxi cab. In a loud booming voice the taxi driver said to me, “Good afternoon, how are you doing, young man?”
I said, “I am doing well, but I am late. How long will it take you to get me to the Ronald Reagan building on 1300 Pennsylvania Ave?”
He said, “I am glad you are running late, as that means you are busy and busy is good. About 10 minutes.” I told him thank you.
We stopped at a red light and he turned around and looked at me and said, “It is good you are busy, and that others are busy, because that means I stay busy, and if we all are busy, we will end the problems with this economic mess.”
I said, “Well, how do you see it?”
He responded that four months ago business was slow, in fact, the slowest he had seen in his 32 years of driving a taxi in Washington, DC. But that things were getting back to normal; that more people were spending money, and when more people spend money, more people have money to spend. This spending gives people jobs which allowed them to spend, which gave business men like me to be in Washington to take taxis to go to meetings about creating more jobs.
When I use the taxi, he then makes more money, so he can spend more money, and so the economy gets stronger and better for us all.
I replied, wow, you just summarized the whole situation of what needs to happen to end this economic mess.
He said, “Well of course - I get it, young man. I have a lot of time with this job to think about a lot of different things. Plus I get to talk to a lot of really interesting people, and I should hope you tell all your friends and business people you deal with that they need to spend some money get us out of this mess. Also tell them that this mess is ending, that my taxicab receipts are up and this means the recession is over, and the recovery is underway.”
So there you have it. Either from the experts in the news or the expert in the taxi: The recession is behind us and recovery is underway. The economic recovery is going to occur across the economy over time. It doesn’t all occur at one time.
As I have said before, this Great Recession will end on the backs of the consumer. The first sector to recover is consumer necessities, then inexpensive discretionary products, them more expensive discretionary products, then housing, and then lastly automotive. In each of these sectors the sequence of recovery will be:
First, the companies that sell to the consumer, then the companies back up the supply chain from these companies, and lastly to the industries that sell the capital equipment to the other companies. So the first recovery has been grocery stores, and the last to recover will be machine tool makers for the automotive industry.
The sectors that have already begun recovery include food, cosmetics, beverage, pharmaceuticals, and inexpensive consumer electronics. Oh and I guess I should include taxi cabs! The next sectors to recover by year’s end include household products, consumer products, public construction, agriculture equipment and semiconductors. Probably the most important reality is that recovery is underway.
The second issue related to the timing for recovery has to do with the lead times required to plan and implement enhancements within the supply chain. If I look at the six major components of the supply chain design: Buy, Make, Move, Store, and Sell, I see planning lead times of 1-8 months with a typical of about 3-4 months.
For implementation, I see time frames from 1 month to 2 years with a typical of 8-9 months. So what this tells me: It would not be unusual for you to need a year to a year and a half to plan and implement many of the changes you will need in your supply chain to handle the return to prosperity.
This tells me, you, like my taxi drive friend told me, need to get on with it! The majority of all companies today need to be planning for their recovery, as time is growing short. My last point in this podcast has to do with the calendar and the budget cycle.
I believe, with the exception of some capital equipment markets, that recovery will occur in 2010 and early 2011. Well guess what? We begin next month the beginning of preparation of our 2010 budget. For 98% of the folks hearing this podcast, you must include in this 2010 budge the dollars required for you to recover, grow and prosper.
You must shake off the recessionary funk and begin now your Great Comeback. Winners pull away from losers after a recession. The comeback race has begun. You need to get on with it. Thanks for being with me again today. In two weeks we will end this series with an update on the economy and the new norm as we continue to move forward.
Not trying to make you anxious, but the new norm is totally different from the norm of 2008. Speak with you real soon.
