Demand is at an all-time high for consumer products but…persistent supply chain disruptions are still the norm.
If you’re an owner or operator of a CPG brand, the last two years have been tumultuous.
We looked deeply at the macro trends in employment and supply chain to suss out where things are headed.
Is help on the way in 2022?
Spoiler alert: It just might be.
Let's talk a bit more about employment...
The unemployment catastrophe that accompanied the pandemic’s onset in the United States was well covered –and unfortunately, lived—by many. The country lost over 10% of its workforce in the immediate aftermath of the pandemic as payrolls dropped by almost 20 million employees from March to April of 2020.[1]
As of December 2021, 22 months since the pre-pandemic employment peak, the United States has gained back close to 98% of that lost employment. For comparison, after the Great Financial Crisis of the late 2000s,it took until March of 2014 to cross the pre-recession employment high of January 2008 – a full 74 months. At the pace with which we added jobs in 2021, we’ll reach pre-pandemic employment almost two and a half times quicker than we did in the period following the previous recession.[2]
In the manufacturing industry, employment was on the decline long before the Great Financial Crisis. Between April 2002 and January 2008, manufacturing shed an average of roughly 23,600 jobs per month. The ensuing recession wiped out over 2 million more manufacturing jobs over the next two years, before finally rebounding around April of 2010.[3]
While the U.S. never reached its pre-recession employment totals in manufacturing, it did realize a steady employment increase in the decade between that employment bottom and the onset of the COVID pandemic.
Manufacturing employment sat around 12.8 million in March of 2020, before over 1.3 million of those jobs were eliminated in one month. In the subsequent 20 months, the employment trend in manufacturing has followed the general employment trend discussed earlier – it has added back all but roughly 100,000 of those jobs as of December 2021 and is on pace to eclipse pre-pandemic manufacturing employment in the early second quarter of this year.[4]
While employment growth alone is an insufficient proxy for projecting an increase in manufacturing capacity, anecdotal evidence from our line of work at Rodeo CPG suggests that an alleviation of these COVID-induced labor shortages should substantially impact manufacturers’ ability to take on more business, and, broadly speaking, handle the increased demand that has coincided with the pandemic.[5]
That’s great news on the capacity side, but more workers in plants won’t help inventory shortages, material lead times, and other supply-related issues plaguing brands and manufacturers alike.
Now, let's talk a bit more about supply chain...
While Supply Chain disruptions persist, recent data from the Institute for Supply Management® (ISM®) show supply disruptions in some key areas are trending in a favorable direction.
ISM aggregates data from the manufacturing sector across 5 sub-categories (New Orders, Production, Employment, Deliveries, & Inventories) to create its Purchasing Managers’ Index (PMI), a measure of the directional movement of the manufacturing sector at-large. Defined by Investopedia,
“A PMI reading above 50 indicates an expansion of the manufacturing segment of the economy compared to the previous month. A reading of 50 means no change. A reading below 50 suggests a contraction.”[6]
For the 19th straight month, Manufacturing PMI® registered a reading above 50, indicating a year and a half growth trend in the manufacturing industry.[6]Within the subcategories that comprise this composite index, recent data suggest the winds may finally be shifting in a positive direction for CPG brands and manufacturers.
Perhaps most relevant for CPG brands, ISM’s December 2021 Manufacturing Report echoes the above positive findings around employment, and indicates positive directional movement in the Inventories, Supplier Deliveries, and Prices index measurements as well.
Inventory levels grew at a slower pace in December 2021 thanin each of the previous three months. According to Timothy R. Fiore, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee,this most recent index reading “somewhat reflects an improved flow of raw materials to factories.”[8]
As demand continues to increase, and supply chains struggle to keep pace, it’s a notable improvement and positive harbinger that Supplier Deliveries slowed at a significantly lesser pace in December than in prior months. While ~35% of manufacturers reported slower delivery times, ~65%reported “Same” or “Faster” delivery times from suppliers, a marked improvement from each of the previous three months, where that ratio hovered around 50:50.[9]
The Prices index slowed its growth pace dramatically in December, with fewer than half of those sampled reporting increases in material prices, down from an average of ~70% for each of the prior three months. Fiore said of these trends,“
The Supplier Deliveries Index, Prices Index and material lead times softening in November and December indicate progress against the supply/demand imbalance.”[10]
What does this mean for my cpg business...
- Revisit past partnerships - If you’ve had adjustments to your production cadence in the past two years – or a promising partnership fall – reach back out to your vendors and see if circumstances have changed.
- Renegotiate current partnerships - If things are going well with your current manufacturing & supply chain, take this opportunity to lock volumes, pricing etc. Things may look very different in 3 months so if you can secure line-time, critical raw ingredients, or anything else, that's big deal.
- Fundraise earlier than you think - The world is still a very volatile place and having more money than you need can go a long way towards offsetting some of the challenges brands are facing.
Anything else?
At Rodeo, we invested a considerable amount of time and resources in 2021 to expand and improve our vendor partnerships so that we could bring a competitive advantage to our services clients.
That allows our brands to access a network of resources and solutions typically reserved for companies 10x the size.
Head over to Rodeocpg.io to sign up for a free account, get access to our preferred partner network and migrate your sales planning out of spreadsheets and into our custom sales planning application.
I Want Rodeocpg.io
[1]Automatic Data Processing, Inc., Total Nonfarm Private Payroll Employment [NPPTTL], retrieved from FRED, Federal Reserve Bank of St.Louis; https://fred.stlouisfed.org/series/NPPTTL, January 22, 2022
[2] Ibid
[3] Automatic Data Processing, Inc., Nonfarm Private Manufacturing Payroll Employment [NPPMNF], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/NPPMNF, January 22,2022
[4]Ibid
[5] This piece finished editing on 2/3/2022, before the official January jobs data was released. However, as of the time of print, early indicators from ADP show an Omicron-induced drop in employment for January 2022.
[6] https://www.investopedia.com/terms/i/ism-mfg.asp
[7] Institute forSupply Management® (ISM®) December 2021 ManufacturingISM® Report On Business® https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/december/
[8] Ibid
[9] Ibid
[10] Ibid
