|Manufacturing Activity Continues Post-Closure Rebound |
U.S. manufacturing activity cooled in September but remained well within expansion territory for the fourth straight month. The Institute for Supply Management’s PMI slipped to 55.4, or 0.6 percent, from 56 in August as the forward-looking new orders index declined. Any reading above 50 indicates growth.
New orders decreased to 60.2 from a reading of 67.6 in August – the highest since January 2004. At the same time, factory backlog increased and customer inventory levels declined. “Shelves are empty and backlog continues to be strong,” said Tim Fiore, chair of the ISM’s manufacturing business survey committee. “This report exceeded expectations.”
After the coronavirus pandemic brought manufacturing activity to historic lows, the sector continues its recovery, Fiore said. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories and are becoming more proficient at maintaining output. U.S. manufacturing employment ticked up in September.
The ISM’s production Index registered 61 percent, down 2.3 percentage points from August’s 63.3 percent. Backlog reached 55.2 percent; 0.6 percent higher than the August reading of 54.6. Factory employment increased by 3.2 percent to 49.6.
Obsolescence Insurance, a New High-Margin Business for EMS Companies
Overall, LLC customers such as those from the aerospace and defense industry face the intense churn of their supply chain generated by the consumer dominated semiconductor marketplace. This leads to issues of reliability and supply chain disruption due to semiconductor obsolescence. In addition, in certain use-models such as smart cities, the cost of maintenance is high because of the distributed nature of the embedded electronics, so some methods for managing future requirements are desirable.
Today, these important issues for LLC customers escape through the cracks of the electronics supply chain ecosystem and are highly impacted by business risk. For semiconductor makers, distributors, and EMS companies, holding inventory for potential future usage by customers is highly risky. For any single LLC systems customer, making lifetime buys is very expensive, and potentially not viable. When risk management is an issue, the natural financial mechanism which becomes useful is the concept of insurance.
Fundamentally, insurance allows an individual to transfer risk to a pool. The premium to enter the pool is governed by the insurer based on the forecast of risk. In addition, the insurer has the incentive to incentivize the reduction of risk through the pricing mechanism of the premium.