Factory Order Data Underscores Need for Robust Inventory Management — and Financing

The U.S. Commerce Department said Tuesday (Sept. 5) that orders for U.S. manufactured goods were down in July, by 2.1%, a reversal from four straight monthly gains.

And with a bit more detail, the results were decidedly mixed.

The data show that durable-goods orders fell 5.2 % in July (orders for transportation equipment were down by more than 14%), while orders for non-durable goods orders rose 1.1%.

In the meantime, shipments were up 0.5% in July, and inventories were 0.1% higher, where the latter metric had declined through the previous two months.

The read across is that retailers and other enterprises — including Main Street smaller businesses — are seeing volatility in end customer demand, and have tempered at least some of their ordering from suppliers headed into the final quarter of the year. The inventory-to-shipment ratio was 1.5 in July, unchanged from the previous month, indicating that at least some goods are stuck in the pipeline, unsold, or on shelves.

Supply chains, then, are not operating as optimally as they might. But as has been spotlighted by PYMNTS’ own coverage, technology and the continued harnessing of data — artificial intelligence (AI) is an enabler here — can help improve inventory management, and financing too.

There are numerous examples of how automation and AI are proving significant conduits to better inventory visibility. Grocery is one of the more visible segment here, but retailers have been tackling the challenge, too, as real-time data information, right down to personalized engagement with users in-store and online can fine-tune stock-keeping.

The Need for Financing

The financing aspect may be the most urgent piece of the puzzle — because having financing on hand means that these Main Street small and medium-sized businesses (SMBs) can a) stay in business and navigate rocky economic seas and b) have the money on hand to order the goods they need to satisfy anticipated end market demand.

But as we’ve found in joint research with Enigma, more than 50% of Main Street SMBs do not have any readily available source of financing. Drill down a bit, and the problem becomes even more acute for the smallest of the small. A full 62% of Main Street SMBs with less than $150,000 in annual revenues have no access to funding. Banks have been tightening their lending (as per a Fed survey, which found that more than half of banks were doing this) and thus traditional avenues to funding working capital or the “gaps” between getting goods ready, selling them, and getting funds in the coffers present significant hurdles.

In the meantime, headed into the waning months of the year, roughly half of these companies are searching for more credit and for financing. Companies such as Amazon and Walmart, among others (including FinTechs such as Faro, covered here), are addressing the unmet need, connecting firms with capital and to faster payments (which improve working capital).