Cortera Supply Chain Index Up, In Line with Seasonal Payment Slowness
The flow of money through the supply chain is as crucial as the flow of goods. While the flow of goods is driven by sales, the flow of money is largely influenced by a company’s confidence that those sales will continue. Strong confidence in sales normally spurs companies to invest in growth initiatives.
On the other hand, a lack of confidence in sales causes companies to conserve cash and slow payments to suppliers. The Cortera SCI provides business leaders and decision makers with a better understanding of the financial confidence of the entire supply chain. When the Cortera SCI is trending up businesses are generally less confident. When the SCI is trending down, cash is flowing more freely and confidence in future business is up.
In November, Cortera Supply Chain Index (SCI) numbers jumped by 13% over the prior month. While this might seem like a big jump, this is typical for this time of year as we head into the holiday season and businesses tend to slow payments to help finance their expanded inventory. Still, since the beginning of 2010 the Cortera SCI has trended back down to levels last seen in early 2008.
As we look back on the Cortera SCI over the last few years it correlates nicely with both the ISM’s Purchasing Managers Index and NACM’s Credit Managers Index - as both indices started contracting in late 2008 (below 50 on the scale), US businesses also began to slow their invoice payments to their suppliers. In 2009 and 2010 as both the PMI and CMI began to improve and show economic expansion, the SCI also began to improve as businesses became more confident in future sales and made more timely payments to their suppliers. (See chart, click to enlarge).
The Cortera SCI is published monthly and tracks late payments against agreed upon terms. A three-year view of this data is available on Cortera’s Web site at www.cortera.com/market-trends .