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What the PMI Report for CFOs Means for You

The Manufacturing PMI report is a monthly report of benchmarks that measure the manufacturing sector’s performance. Data is collected via surveys of supply executives from a wide range of industries. A series of indices take readings in specific areas, including new orders, order backlogs, production, employment, prices, and supplier deliveries.

These numbers are then used to generate an overall manufacturing benchmark known as the PMI, which is expressed as a percentage. Several different organizations publish a monthly PMI report, but the gold standard for the American market is released by the ISM (Institute for Supply Management). 

The PMI report is a reflection of macroeconomic factors and can be used to give an accurate picture of how the overall economy is performing. According to the ISM, a PMI of over 50% indicates expansion in the manufacturing sector, while a score below 50% means the manufacturing sector is slowing down. At a higher level, when PMI remains above 48.7% for some time, this is a strong indicator that the overall economy or GDP (Gross Domestic Product) is generally expanding. Conversely, if the Manufacturing PMI remains below 48.7%, it signals declining economic growth. 

The PMI report is an essential tool for CFOs who are trying to read the tea leaves in terms of what to expect for upcoming quarters. It provides leading indicators that CFOs can work with to be strategic in their planning.

 

February PMI Report 

ISM recently published its February Manufacturing PMI report. It shows that the manufacturing sector is booming, and the U.S. economy is in growth mode. The Manufacturing PMI hit 58.6% for the month, up a full percentage point over January’s reading. According to ISM: 

“The Manufacturing PMI® continued to indicate strong sector expansion and U.S. economic growth in February. All five subindexes that directly factor into the Manufacturing PMI® were in growth territory. All of the six biggest manufacturing industries expanded…”

This marks 21 straight months of overall economic expansion following the contraction measured in April and May 2020 (more on that shortly).

There are some interesting details from the February PMI report that should definitely be catching the attention of CFOs and strategy makers. The New Orders Index grew 3.8% for the month to hit 61.7%, indicating new orders are growing at a high rate. In fact, ISM says all six of the largest manufacturing sectors (Transportation Equipment; Computer & Electronic Products; Petroleum & Coal Products; Chemical Products; Machinery; and Food, Beverage & Tobacco Products) saw their orders increase at moderate to strong levels.

A strategic CFO will be looking at these indicators and applying the trends to their business.

Maybe they need to increase the order frequency from suppliers to keep up with demand. Perhaps it’s time to revisit supply chain resiliency to ensure shortages don’t shut down production just when demand is exploding. It could be time to get strategic about suppliers. With that level of demand, this would be a good time to lock down future supply.

 

Historical PMI Report Shows How Quickly the Situation Degenerated in 2020

February’s Manufacturing PMI report shows a U.S. economy that is in strong growth mode. Historically, the Manufacturing PMI report provides a clear picture of what was happening at that snapshot in time. On the other hand,  ISM’s April 2020 PMI shows how badly the COVID pandemic was hammering the manufacturing sector.

As a refresher, on January 21, 2020, the first confirmed American COVID case was reported. On February 3, 2020, the U.S. declared the outbreak to be a public health emergency. And on March 11, 2020, the World Health Organization announced COVID-19 as a global epidemic.

By April, the pandemic was wreaking havoc on the manufacturing sector. ISM’s April 2020 PMI was at 41.5%. That was down 7.6% from the March report, and it marked a contraction in the U.S. economy—an ominous sign after 131 consecutive months of expansion. Breaking down the various indices that make up the PMI report showed more detail that would prove invaluable to CFOs who used the information proactively.

Among the details, ISM noted that the inventory of raw materials was contracting, exports and imports were contracting, and customers’ inventories were too low. ISM noted: 

“The PMI® indicates a level of manufacturing-sector contraction not seen since April 2009, with a strongly negative trajectory.”

The PMI report proved to be prescient, as supply chain disruptions roiled many industries and demand outstripped supply for many products. CFOs who acted on that PMI report took strategic measures such as stockpiling raw materials and locking in transportation contracts, mitigating the worst of the impact.

 

Turnaround Can Happen Quickly: CFOs Need to Have Predictive Capability to Shift Quickly

The lesson to be learned from these two Manufacturing PMI reports is that change can happen dramatically in the manufacturing sector. However, more commonly, it is a multi-month trend that can be tracked and used in projections as a leading indicator.

CFOs need to leverage the PMI report. They also need to act strategically based on those leading indicators, and that’s where Arkestro comes into the picture. Arkestro provides the ability for a CFO to have full visibility into the three key areas of business impact:

  • Influencing more spend
  • Driving more predictable cost savings
  • Delivering accelerated improvement on supplier parnterships

Using Arkestro, the CFO can simulate outcomes and ensure they are able to align their strategy with the market conditions being signaled by the PMI.   

With a little bit of forward-thinking planning becomes much easier. But, even when planning fails, Arkestro’s predictive procurement platform will ring the alarm bells for you. Get a demo today and let us show you how you can stay on top of market changes.

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

2022 Gartner® Hype Cycle™
for Procurement and Sourcing
includes Arkestro.

2022 Gartner® Hype Cycle™ for Procurement and Sourcing includes Arkestro.

Gartner® Hype Cycle™ are registered trademarks of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

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