TL;DR

Demand holds, supply tightens. The ISM Manufacturing PMI held at a four-year-high 54.0 in May, its fifth straight month of expansion, while supplier deliveries slowed and raw-materials inventories contracted. You are scaling into a supply constraint.
ERP Watch: Microsoft Build 2026 and SAP Sapphire 2026 both reframed ERP from a system of record into the foundation for AI-driven, autonomous operations, and the 2026 State of Industrial AI Report confirms ERP is now the focus of AI integration.
AI in Manufacturing: reshoring and adaptive automation converged, opening a capex window stacked with bonus depreciation and Section 179.
Industry Watch: input prices cooled slightly to 82.1 but stayed elevated, the DOJ moved to appeal the IEEPA refund injunction, and global manufacturing growth got downgraded to 2.6%.
The take: the capex-timing question and the margin-defense question are one question this quarter, and the answer lives in your ERP data.

Manufacturing activity scaled to a four-year high in May. The ISM Manufacturing PMI registered 54.0 percent, up 1.3 points from April and the fifth consecutive month of expansion. New orders are growing, production is growing, and demand is real.¹

Here is the other side of the same story. Input prices held at 82.1 after spiking to 84.6 in April, the highest reading in four years. Supplier deliveries are slowing. Raw-materials inventories are contracting. You are scaling into a supply constraint while input costs stay elevated.²

This is the Third Wave weekly roundup. Here is what moved, what to watch, and what each item means if you run a manufacturer or distributor from SMB to mid-market, whatever ERP you run on.

ERP Watch

Two announcements this week redefined what ERP does, and both point at the same shift: ERP is becoming the foundation for autonomous operations.

Microsoft Build 2026 showed how data, AI, and ERP are converging. In back-office functions, agentic AI now manages supplier follow-ups, order changes, reconciliation, and OCR-driven quality and compliance documentation.³ SAP made the same move at Sapphire 2026: the role of ERP is evolving from a system of record into a foundation for intelligent, AI-driven business operations.⁴ We made the same bet ourselves rather than wait for it, which is why we started building AI into ERP directly.

The 2026 State of Industrial AI Report, which surveyed more than 350 manufacturing professionals across 19 countries, confirmed the trend. Enterprise resource planning systems are now the focus of AI integration efforts, and manufacturers are moving toward autonomous operations where routine tasks happen without human intervention.⁵

What this means for SMB to mid-market manufacturers and distributors: the AI conversation is no longer about whether to adopt. It is about whether your ERP data is clean enough to deploy agentic AI and trust the output. Duplicate business partners, inconsistent item naming, and legacy migration artifacts are not cosmetic problems anymore. They are the difference between AI you trust and a confident wrong answer. This is exactly why we treat ERP as a connected business platform, not a box of disconnected modules.

AI in Manufacturing

Automation and reshoring converged this week. Rising tariffs, shipping costs, and overseas wages are accelerating reshoring and increasing demand for efficient, localized production in the US, with automation and robotics at the center of the revival. Manufacturers are bringing production back onshore without the full labor-cost burden because adaptive automation fills the gap.⁶

Adaptive-automation vendors are scaling to help manufacturers cope with labor shortages while controlling domestic production. The pitch is unattended production and productivity gains without an enterprise budget. Capability once reserved for the giants now fits a mid-size shop’s balance sheet.

What this means for SMB to mid-market manufacturers and distributors: reshoring is opening a capex window. The combination of 100 percent bonus depreciation restored for 2026, Section 179’s $2.56M deduction limit, and reshoring tailwinds is the most favorable capex environment in years. If you are planning automation upgrades or capacity expansion, the math works now. The window is time-limited, and the input-cost environment is not improving. But automation amplifies whatever process you point it at, so fix the data first, then automate.

Industry Watch

The tariff and tax picture stayed messy, and the messiness has a price tag attached to your working capital.

Here is what changed since last week. We left off with the Court of International Trade ordering CBP to reliquidate and refund affected IEEPA entries, with a hearing set for June 9. This week the Department of Justice signaled intent to appeal that injunction after the CBP Commissioner was ordered to appear, and DOJ secured a new 60-day window, to June 6, to file. CBP has been filing biweekly status reports since March, and the CAPE portal that went live April 20 for consolidated refund claims is still running, but the appeal could stall the refund pipeline.⁷ If you are an importer sitting on refundable duties, this clock is yours, and the real question is whether your ERP can prove what CBP owes you.

On the cost side, the ISM prices-paid measure edged down to 82.1 in May from April’s 84.6, the highest reading since April 2022, but stayed well above its historical average. Geopolitical disruptions, including the conflict with Iran and continued tariff actions, kept input costs elevated, and Interact Analysis downgraded global manufacturing growth to 2.6 percent for 2026 on the same pressures.⁸ (For the broader picture on how fast-moving trade rules land on your ERP, see Tariff Law Just Changed Again.)

What this means for SMB to mid-market manufacturers and distributors: these are cash-flow events, not headlines. Refundable duties are working capital you are owed. Elevated input costs squeeze margin exactly when demand is scaling. Both live or die on whether your ERP tells you, fast, what you imported, what you bought, what you are owed, and where your landed costs are heading. The answer should take a query, not a week. That is also the case CFOs make when they justify ERP investment in a tight budget year.

The take

Last week the question was whether demand was real. This week it is. The PMI held at a four-year high for a fifth straight month, so the order book is not a one-month blip. What changed is the other side of the ledger: supplier deliveries are slowing and raw-materials inventories are contracting, so the constraint is shifting from demand to supply. Prices cooled a hair to 82.1 but did not break, and the refund fight moved from a court date to a live appeal. Cash and margin are still uncertain, only now you are chasing capacity into a tightening supply base.

That sharpens the call rather than softening it. Waiting for supply to loosen means waiting while a permanent 100 percent write-off and Section 179 sit unused and competitors lock in capacity ahead of you. The smart play is to move, with eyes open: buy the capacity, model the state-conformity hit before you sign because many states do not conform to federal bonus depreciation, and lean on adaptive automation to add output without adding payroll. None of it works on guesswork. It works on an ERP instance that answers, the moment you ask, what your inventory, supplier reliability, landed cost, and refundable duties actually are.

The capex-timing question and the margin-defense question are one question this quarter. The companies winning it are the ones whose ERP data is ready to answer before the window closes.

References

ISM Manufacturing PMI at 54.0, May 2026 — PR Newswire
US manufacturing scales four-year high; input costs and supply constraints — Reuters
Microsoft Build 2026: AI, data, and ERP converge — Forbes
How AI is moving manufacturing to autonomous operations — Forvis Mazars
2026 State of Industrial AI Report — Automation.com
How automation and robotics are accelerating reshoring — Focus Investment Banking
DOJ signals appeal on IEEPA tariff refund injunction — Thompson Hine SmarTrade
Global manufacturing growth downgraded to 2.6% — Interact Analysis

The PMI Hit 54 and Input Costs Are Still on Fire: The Week in Manufacturing