The supply chain manager’s guide to navigating a recession

Are we in a recession? With the rising costs of energy, enormous inflation and soaring property prices it certainly feels like it. And the National Institute of Economic and Social Research agrees. It recently suggested that UK economy will continue to contract in Q4 and that this continuation means we are absolutely in a recession. And we may be for some time to come.

 

However, it looks like this recession will have very different characteristics from what we’re used to seeing. (For example, in the 2008-9 recession.)

One thing that makes this recession feel so different from previous economic drops is how businesses spend. As with any economic contraction, leadership teams are beginning to tighten purse strings and ‘close the bank’ by limiting funding of internal initiatives. The business areas hardest hit by this are non-revenue generating functions like Finance, HR and Operations. In some businesses, this means Supply Chain too. But not for all.

The second factor that makes this recession odd is the job market. Where we would have previously seen a significant dip in job availability, we instead see the opposite. As most supply chain leaders will know, finding and retaining talent has been a significant struggle over recent years. The current expectation is that this will continue into the next several quarters.

So what does this mean for supply chains?

 

How recessions impact supply chains

Firstly, supply chains are at the heart of this recession. Global disruption of supply chains is a critical factor in the widespread economic downturn. Around the world, people are finding it harder and more expensive to source the goods and materials they need. Which is driving the cost of living to skyrocket.

Not only do supply chains tangibly impact recessions, but they are also directly impacted by them in return. 

 

What supply chain managers can do

With all of that going on, a lot will be riding on how supply chain leaders respond to the recession. Focusing on these four key areas can help you make more impactful and beneficial decisions during the economic downturn.

Acting quickly

Place a strong focus on data-driven decision-making and start making those decisions quickly. As we’ve seen before, businesses that are able to rapidly and agilely adapt are the ones that come out on top. Especially important to consider will be shifting inventory strategies and scenario planning. With the unprecedented consistently becoming its own sort of precedent, using AI and digital twins to plan scenarios and get insight into 

Read more: Why your supply chain invoices are out of hand

Managing providers

During any time of turbulence, it can be tempting to batten down the hatches and hold what you know close. However, we’ve seen that supply chains which expand to a multi-carrier approach are more resilient in the long term. 

Limiting your supply chain to a single provider means limiting your ability to save across routes. No single supplier can be the most affordable across all routes and all channels. If, however, you embrace a multi-carrier strategy, you open up the possibilities across your network. Doing this can also help insulate you from problems your providers may face during the recession.

Learn more: Supply chain resilience in 2022 & beyond

Communicating more

Communicate early and often. Every stakeholder from customers to your team to the CFO will benefit from you being more communicative. Internally, this is important to make sure you have sight of issues early and can act on them. But it also builds trust with your customers and makes them more comfortable relying on you. To be sure you are making the most of your comms, be sure to include:

  • Any customer-centric changes
  • Financial health (particularly internally)
  • All plans that impact stakeholders outside of supply chain
  • Any stumbling blocks you run into

Investing in tech

In their recent podcast, Gartner explored how CFOs and supply chains are likely to interact over the course of the recession. Interestingly, both supply chains and digitalisation projects seem to be high on the CFO ‘keep’ list. Where previous recessions have seen both supply chains and IT take a hit, financial leaders seem to see the value in investing in them. 

Read more: AI in Logistics– The Secret Behind a Resilient Business Strategy

Savvy supply chain managers will use this as an opportunity to invest in digitalisation and automation. It’s a good time to propose any tech projects that will enable greater capability and save costs in the long term.

 

Making it through this contracted economy will mean playing it smart, moving fast and getting buy-in from both your leadership and your customers. Although supply chains may not make it out of the recession unscathed, they are in a unique position to make the most of this time. Use this as an opportunity to rethink and transform your supply chain.

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