Reading the Tea Leaves: Logistics as a Leading Economic Indicator

Logistics management, Mercury Gate TMS

Logistics Management Professionals:

The Logistics Manager’s Index Offers New Insight into Economic Growth

Logistics management professionals have long understood that the relationship between their industry and the economy is filled with complexities. It’s also one filled with a large reservoir of data that can help gauge where the economy might be headed. Tapping into that data and viewing logistics as an economic indicator is the goal of a new index launched in September 2016 by five universities and supported by the Council of Supply Chain Management Professionals.

The Logistics Manager’s Index (LMI®) is based on monthly data collected through a survey of senior-level supply chain executives. The index score is a combination of components of the overall supply chain, including inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The LMI is then calculated using a diffusion index. A score above 50 indicates growth or expansion, and a score below 50 indicates that the logistics industry is contracting.

Staying ahead of economic shifts

When you consider that overall logistics cost just in the US were $1.48 trillion in 2015 (7.85% of US GDP), you can understand that shifts in logistics spending can be an early indicator of future economic performance. That’s what the Logistics Manager’s Index is intended to measure. The index can help everyone in the logistics industry better understand where the economy is headed, and perhaps be prepared to react, according to Dale S. Rogers, professor of logistics and supply chain management at Arizona State University.

“There are components of logistics that are leading indicators of US economic performance,” said Dale S. Rogers. “For example, transportation can help you know if there is going to be an expansion. Often, changes in transportation happen earlier than the up or down cycles of the economy. It helps if you are able to see what’s going to happen in the future.”

In addition to Arizona State, researchers from four other universities work on sifting through and preparing the index for publication on a bi-monthly basis. Those schools include Colorado State University, Portland State University, Rutgers University, and the University of Nevada, Reno.

The LMI is similar to the Purchasing Manager’s Index (PMI®) from the Institute of Supply Management (ISM). However, the researchers wanted to focus specifically on the logistics aspects of the supply chain.

“The PMI has been around a long time,” says Dale Rogers. “We thought we should have something on the logistics side to look at warehousing, transportation, and inventory and demonstrate how logistics can serve as a leading economic indicator, as well.”

“You can look at this data and make some decisions on whether you should expand or not expand.

It can help you see if costs are up. You can then make decisions on what you are going to do if inventories are going up and if that means the economy is doing well.”

– Zachary Rogers, assistant professor of Supply Chain Management at Colorado State University

Learn More about the Logistics Manager Index

Driving logistics management insight and business decisions

The index is intended to look at the macro trends of what’s happening across the supply chain. While it doesn’t measure what is happening at a specific firm, it can provide some key data points that firms can use to inform their business strategy, said Zachary Rogers, assistant professor of Supply Chain Management at Colorado State University.

“You can look at this data and make some decisions on whether you should expand or not expand,” said Zachary Rogers. “It can help you see if costs are up. You can then make decisions on what you are going to do if inventories are going up and if that means the economy is doing well.”

Another example might be if you want to expand into a specific region or market. Before making a big expenditure, you can look at warehouse pricing. If it’s skyrocketing, you can reconsider or maybe lease.

Encouraging signs for the economy and job prospects

The LMI is still relatively new. The research team published their fourth report in March 2016, and the next report is scheduled for later this month. It might take a year or two before researchers can truly start to see the trends taking shape from their data. What they are seeing thus far should be very heartening for current and future logistics management professionals.

“One thing that is encouraging is how consistent the index has been,” said Zachary Rogers. “The index has been in the high 50s and low 60s in each report. That is a pretty encouraging trend in terms of the growth of logistics industry. And, as a professor trying to help students get out into the job market, that is something that makes me happy.”

Both Rogers point out that as the number of people participating in the survey increases, the report will provide a more precise view of logistics management trends. They are inviting more supply chain professionals to take part in the standing panel that they survey each month. For anyone interested, they can contact Dale Rogers at dale.rogers@asu.edu.