IT Spending in the Supply Chain Driving Change

Commentary:

As Intel reported earnings for the second quarter, it became clear yesterday that businesses are replacing older and outdated processors as part of a normal (but delayed) technology update cycle. That’s part of the story. But there is another side that has much larger economic implications. Companies are using cap ex to upgrade equipment to make their supply chains smarter and more predictive (as well as to hold off on hiring until the economy is clearly on the mend).

If companies can use information gathering and analysis tools to move further upstream in the supply chain into stronger demand planning activities (so that they can anticipate demand with accuracy), they can better control inventory.

We see this trend happening across the country as cash flow worries continue and tying up too much cash by carrying too much inventory is a real concern. As supply chains get smarter, the responsibility for those partners in the supply chain goes up (suppliers, transportation providers, etc.). A failure by any member of the supply chain sends a highly automated process into disarray forcing understaffed companies to scramble for fixes to the problem. That will be the competitive differentiator moving forward those that can perform with precision and reliability will be the winners in the new global economy. This has been the story for some time, but tighter staffing levels and less leeway in the supply chain will put a greater emphasis on perfection. Mistakes will be amplified. Probably more impactful for the general economy is the impact that this trend will have on staffing. Companies are still using technology upgrades for productivity improvement instead of looking at additional staffing levels for now. That will have a broader impact on unemployment figures for the nation if this trend continues. Economic growth can happen to a degree, but unless it spurs hiring, it will eventually meet up with low consumer spending (70% of the economy) and things could stall.

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