The ISM data signals five months of manufacturing expansion. It also reveals the organizational execution gaps that will determine whether your supply chain can actually deliver on it.

Read also: Poor Supplier Communication is the Enemy of Competitiveness

The May ISM Manufacturing PMI came in at 54.0, up 1.3 points from April and the highest reading since May 2022. New orders expanded for the fifth consecutive month, reaching 56.8%. Production activity and order backlogs are both trending in the right direction. For supply chain professionals, the instinct is to read this as validation: the investments in supplier relationships, resilience, and network design are about to pay off.

That instinct may be premature.

The same report that signals expanding demand also exposes a more uncomfortable reality: many of the organizational conditions that determine supply chain performance, including production planning, demand forecasting, inventory discipline, and frontline execution, remain under significant strain. And supplier relationships, however well-managed, cannot consistently outperform the internal operations they depend on.

The ISM Data Reveals More Than Market Momentum

Look past the headline PMI number and the picture becomes more complex. The Prices Index hit 82.1% in May, the second highest level since April 2022 and the 20th consecutive month of input cost expansion. Supplier Deliveries held at 60.6, a multi-year high reflecting significant lead time extensions across the sector. Nearly every industry comment in the report referenced higher prices as a primary concern.

These are not supplier-side problems alone. Extended lead times and cost escalation are frequently amplified by unreliable demand signals, weak production planning, and inventory decisions made without adequate visibility. When manufacturers send inconsistent forecasts, change orders late, or fail to communicate shifts in demand, suppliers cannot plan effectively; the resulting friction shows up in exactly the metrics the ISM is tracking.

The employment picture adds a further dimension. Despite five consecutive months of manufacturing expansion, the Employment Index came in at 48.6 in May, contracting for the 32nd straight month. Manufacturers are absorbing rising demand without proportional workforce growth. That pressure doesn’t stay inside the plant walls. It affects order accuracy, scheduling discipline, and the quality of communication that flows to suppliers, all of which shape how well those relationships actually perform.

Supplier Performance Is a Downstream Symptom of Internal Execution

This is a pattern that surfaces consistently across manufacturing environments. When organizations experience rising customer complaints, distribution failures, or supply chain fragmentation, the instinct is often to focus on supplier performance: tightening contracts, adding oversight, or diversifying the supply base. Those responses can be appropriate. But they frequently treat the symptom rather than the cause.

The underlying cause is more often found inside the organization: demand forecasts that are unreliable, production planning processes that are weak, distribution functions that lack clear leadership and direction, and goal structures that are not quantified, understood, or linked to accountability. In those conditions, supplier relationships absorb the dysfunction rather than deliver value.

Fixing the supplier relationship without addressing those internal conditions produces limited and temporary results. The organizations that achieve durable supply chain improvement do so by treating it as an execution challenge, redesigning the processes, structures, and management systems that govern how demand signals are generated, how production is planned, and how performance is measured and managed across the network.

Consider a leading global producer of industrial enzymes that tripled revenues through acquisitions while focusing almost exclusively on production technology. Customer complaints quadrupled. Distribution costs spiraled. The instinct was to address the supply chain directly. But the root causes were entirely internal: demand forecasts were unreliable, production planning was weak, distribution lacked leadership and direction, and goals were neither quantified nor linked to any accountability system. The organization’s supply chain was not underperforming because of supplier failures; it was underperforming because the internal execution systems required to run it effectively did not exist. Addressing those foundations, redesigning processes, restructuring the organization, and implementing goal alignment across the network produced a 54% reduction in total inventories, a 38% reduction in distribution costs, and the recovery of several previously dissatisfied major customers.

Growth Will Expose the Gaps That Slower Periods Concealed

Periods of expansion are not forgiving. When demand accelerates, inefficiencies that were manageable during slower periods become significant barriers to performance. Forecasting errors carry greater consequences. Scheduling failures create more visible bottlenecks. Inventory decisions that seemed prudent become costly. And the communication gaps between manufacturers and their suppliers, gaps that existed but were tolerable at lower volumes, become acute.

The convergence of 32 consecutive months of employment contraction with five straight months of demand expansion is a stress test for the entire operating model. Organizations that have built strong internal execution systems, including clear processes, aligned goals, disciplined production planning, and effective frontline management, will be positioned to translate demand growth into results. Those that have not will find that growth creates problems at least as fast as it creates opportunity.

Geopolitical disruption, supply-chain volatility, and persistent cost pressure are compounding the challenge. Resilience matters, but resilience without internal discipline becomes expensive quickly. The most effective manufacturers are balancing both by strengthening operational visibility, improving decision-making processes, and ensuring their organizations can respond quickly and consistently when conditions shift.

Technology Investments Require Operational Foundations to Deliver

Manufacturers are accelerating investments in AI, advanced analytics, and digital supply chain tools. The intent is sound: better visibility, more responsive planning, stronger supplier collaboration. But technology investments in supply chain functions consistently underperform when the underlying operating foundations are not yet in place.

Demand forecasting tools are only as useful as the discipline behind the inputs. Supplier collaboration platforms require that the manufacturer’s own planning processes are reliable enough to share. Inventory optimization systems depend on accurate data from operations that are actually under control. Companies that deploy new tools before addressing process discipline and management systems often struggle to realize the expected benefits, not because the tools are inadequate, but because the operational conditions required to activate them are not there.

The sequence matters. Technology can accelerate performance, but only when it is built on solid operating foundations.

The Real Competitive Advantage Is Internal Readiness

Recent industry research finds that 79% of manufacturing executives identify skilled labor shortage as their single greatest challenge. Nearly 70% are responding by increasing investment in robotics and equipment. The pressure to do more with fewer resources is real, and it travels through the supply chain in both directions.

In that environment, productivity improvement offers greater returns than capacity addition. Growth in 2026 will not come primarily from broad workforce expansion or capital investment. It will come from the ability to extract more value from existing assets, processes, and people, translating that internal performance into a supply chain that runs with greater precision, reliability, and speed.

For supply chain professionals, the practical implication is direct: the quality of your supplier relationships is partly a function of how well your organization gives those suppliers something reliable to work with. Consistent forecasts. Clear demand signals. Accountable planning. Responsive communication. Those capabilities do not come from supplier management practices alone. They come from the organizational execution systems that sit behind them.

The ISM report sends an unambiguous message: market conditions are improving, and the organizations best positioned to capture the upside will be those that built their operational foundations before they needed them. Manufacturers that move now to identify where execution is breaking down, where planning discipline is weak, and where management systems are not translating strategy into frontline performance will be positioned to capture disproportionate gains as the market expands.

The opportunity is real. So is the risk. The companies that emerge as leaders in this cycle will be the ones that recognized internal execution as the foundation of supply chain performance, and acted on that recognition before the cycle peaked.

About the Author

Mark Zeffiro is a Managing Partner at Brooks International. He brings more than 30 years of global operations and finance experience, including roles as CEO, CFO, and board director across global manufacturing and industrial businesses.