Notably, New York Crane and Equipment Corporation did not have anyone experienced in sourcing working on this project. The entire research-to-installation cycle was handled by a mechanic working for James F. Lomma, the company owner.

The tragedy highlights problems that sourcing professionals face often: ascertaining supplier company credentials and ensuring quality control can be difficult, especially when using company-provided information to do it.   Top-level assessments of a manufacturer’s history and production levels can be made with services like Panjiva, but that is only the first step. These are real problems that require experience and attention, as well as comprehensive product assessments and quality control procedures, to deal with properly. They don’t—and can’t—afford shortcuts.

Reasons for optimism:

• This year’s July-to-August increase compares favorably to numbers from 2008 (1% decrease) and 2007 (1% decrease)
• The percentage of significant manufacturers on the Panjiva Watch List declined to 28% — down from 29% in July.
• The percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months declined to 38% — down from 40% in July.
• From July to August, there was a 1% increase in the number of U.S. companies receiving waterborne shipments from overseas.

As we look ahead, it’s worth remembering that September is when global trade fell off a cliff last year.  For the remainder of 2009, there are three possible trajectories for global trade:

• Cliff-diving — If we have a new shock to the financial system, look for global trade to go off a cliff for a second year in a row.  Low probability (we hope).
• Holiday surge — If retailers bet on strong consumer spending in the holiday season, look for global trade to surge in the months ahead.  Anecdotal evidence suggests that corporate buyers are being cautious (better to be burned by having too little inventory than by having too much), so a holiday surge is unlikely.
• Holding steady — Probably the best bet.  Over the last several months, we’ve seen a slow but steady recovery of global trade activity.  No reason to think we won’t see more of the same.

Of course, we’ll see soon enough.  In the meantime, methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of August, there were 86,686 significant manufacturers.
• “Significant buyers” are U.S. companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of August, there were 73,683 significant buyers.

In the past, incidents like these have served as catalysts for positive change.  Will it be the same this time?  Yes, particularly if the sourcing community embraces two inconvenient truths:

1) This is not an isolated problem

It will be tempting to write off this incident as one-of-a-kind.  However, if pressed, most sourcing professionals will admit that “compliance” problems are widespread in global manufacturing.  Why don’t we hear more about these problems?  Because the only people interested in exposing these problems have limited power (those physically harmed), limited attention span (the press), or limited financial resources (NGOs).

Press and NGOs tend to focus their investigative efforts on big companies, which make big targets.  But these big companies — whether motivated by a desire to make a positive difference or a desire to protect their brands — have made the most progress in addressing compliance problems.  Yes, sometimes the big companies get caught doing something wrong, but it’s a good bet that the vast majority of abuses of people and the environment are happening in the supply chains of small and medium size companies, which are not under constant scrutiny and which lack the resources to effectively monitor manufacturers around the world.

2) Technology is not keeping up with changes in the sourcing organization

The role of the sourcing organization has expanded dramatically over the last few decades.  Today’s sourcing professional has to do much more than find low-cost suppliers of goods and services; indeed, s/he has to cope with an array of risks that come with doing business across borders (political, macro-economic, environmental, ethical, legal, etc.).  Unfortunately, as the role of the sourcing professional has changed, the tools at his/her disposal have basically remained the same.  Those tools?  Middle-men (that will check out a factory on your behalf) and airplanes (that will get you to a factory in case you want to do it yourself).

Given the many technology advances of the last few decades, why do today’s sourcing professionals not have better tools for tackling their many challenges?  In particular, why are there not more effective risk-management tools for companies of all sizes?  Primarily because we have failed to recognize the dangers of pervasive global supply chain risk and, as a result, we have failed to imagine how technology can be leveraged to manage risk.

But technology, while not a cure-all, CAN be leveraged to help sourcing professionals do their increasingly complex jobs — and, in particular, manage risk.  For instance, technology can help organizations capture information from a variety of stakeholders and intelligently use this information to spot risky behavior.  More on this in future posts.  In the meantime, I would love to hear your ideas for how technology can help sourcing professionals (josh@panjiva.com).  As they say in DC these days — we must not let this crisis go to waste.

Similarly, the Panjiva Watch List numbers were unchanged:

• The percentage of significant manufacturers on the Panjiva Watch List remains at 30%.
• The percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months remains at 40%.

What to make of these numbers?  The slight decline from May to June is slightly less than last year’s May-to-June decline (2%).  Thus, it seems that global trade now appears to be tracking its typical seasonal path, albeit at a lower absolute level of activity.  Feels a bit like the global economy is treading water.

Methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
  
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of June, there were 86,616 significant manufacturers.
• “Significant buyers” are companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of June, there were 72,850 significant buyers.

See our previous analyses of other bankruptcies in the auto industry.

BusinessWeek:  “Panjiva uses algorithms to clean up and analyze data to score suppliers on, for instance, whether business is growing, stable, or declining. ‘We take multiple data sources and triangulate them to see if they are telling you the same story,’ says Psota, 29, chief technology officer.
http://images.businessweek.com/ss/08/06/0627_fresh_entrepreneurs/3.htm

BusinessWeek: “Panjiva plans to launch a function this summer that will allow sources to apply to add data to the platform to create a richer pool and ‘democratize the availability of information,’ says Green. ‘There are a lot of companies doing innovative things and we’ll accomplish more by harnessing their innovations to serve clients.’”
http://www.businessweek.com/innovate/next/archives/2009/06/data_packaged_u.html

“Multinational corporations and their manufacturing partners in emerging markets need to rethink how they manage their relationships with each other in light of the global downturn.”

http://hbr.harvardbusiness.org/2009/07/just-how-healthy-is-your-global-partner/ar/1

The Wall Street Journal: “‘America led the global economy into a downturn; now, a sustained increase in the number of global companies serving the U.S. market suggests that America may be leading us out of the downturn,’ said Panjiva CEO Josh Green. ‘That said, anyone hoping for a quick recovery to pre-crisis levels of global trade is likely to be disappointed.’”

http://blogs.wsj.com/economics/2009/06/18/trade-picture-clouded-by-rise-in-oil/

“Panjiva in BusinessWeek — Global Trade Data” />

BusinessWeek: “‘Increasingly, it feels that the worst is behind us,’ says Josh Green, chief executive officer of the trade-tracking firm. Waxing cautious, however, he adds ‘Still, we have a long way to get back to the pre-crisis level of global trade.’”

http://www.businessweek.com/managing/economic_recovery/blog/archives/2009/06/global_trade_ri.html

About.com: “Panjiva’s research team also found that there was a decline in manufacturers on their watch list, which was the first time since September 2008.”

http://logistics.about.com/b/2009/06/17/shipments-to-the-us-rise-again-in-may.htm

Supply Chain Management Review: “We are seeing some encouraging signs, but there is still a low level of overall activity in an absolute sense.”

http://www.scmr.com/article/CA6665999.html

Logistics Management: “Companies continue to be cautious in their approach to placing orders, according to Green, and they are much more cognizant of the risks that are in their supply chains.”

http://www.logisticsmgmt.com/article/CA6665988.html?industryid=48470

World Trade Magazine: “Panjiva cautions that there will likely be further supplier bankruptcies.”

http://www.worldtrademag.com/CDA/Articles/Breaking_News/BNP_GUID_9-5-2006_A_10000000000000610030

Modern Materials Handling: “Said Green… ‘As macroeconomic circumstances change, people are going to be looking at a variety of potential risks.’”

http://www.mmh.com/article/CA6665991.html

Carpe Diem: “[M]ore offshore manufacturers are shipping goods into the consumer-driven U.S. market, global-trade tracker Panjiva reports.”

http://mjperry.blogspot.com/2009/06/shipping-index-rises-for-third-straight.html

Some additional good news:

• The percentage of significant manufacturers on the Panjiva Watch List declined from 31% in April to 30% in May.  This also is a first — the first decline in the percentage of significant manufacturers appearing on the Watch List since we began tracking this metric in September of 08.
• Similarly, the percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months declined from 41% in April to 40% in May.

These numbers lend further credence to the possibility that global trade has already hit bottom and that we are witnessing the first steps of a recovery in global trade.  However, pessimists should take note of the following:

• In 2008, there was a Spring uptick in the number of manufacturers shipping to the U.S., suggesting that there’s a seasonal component to what we’re seeing.
• This most recent 2% uptick in the number of manufacturers shipping to the U.S. is modest, suggesting that recovery to pre-crisis levels of trade activity will likely take some time.
• While things are getting better in a relative sense, the absolute amount of risk in the system remains quite high.  I.e., we’re likely to continue to see supplier bankruptcies, and the system as a whole remains quite vulnerable to further shocks.

Methodological notes for the data junkies:

• Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
• “Significant manufacturers” are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of May, there were 86,331 significant manufacturers.
• “Significant buyers” are companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of May, there were 72,031 significant buyers.

“With the state of the economy, news orgs like BusinessWeek and The Wall Street Journal have turned to it [Panjiva] as a bellwether for the health of global trade.”

Read the rest…