• Latest
  • Trending
  • All
Managing supply chain risk in an economic downturn

Managing supply chain risk in an economic downturn

December 7, 2019
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

April 15, 2020
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

April 14, 2020
Mzee Moi’s Ksh10B Gift to Gideon

Mzee Moi’s Ksh10B Gift to Gideon

April 14, 2020
Covid Knights: Corporate social purpose in the time of COVID-19

Covid Knights: Corporate social purpose in the time of COVID-19

April 14, 2020
How Tesla And BMW Are Leading A Supply Chain Renaissance With Blockchain

How Tesla And BMW Are Leading A Supply Chain Renaissance With Blockchain

April 14, 2020
Last Mile Delivery Market Worth Observing Growth | UPS, FedEx, SF Express

Last Mile Delivery Market Worth Observing Growth | UPS, FedEx, SF Express

April 14, 2020
LATAM Cargo strengthens European cargo links

LATAM Cargo strengthens European cargo links

April 14, 2020
Ford making reusable hospital gowns from airbag materials as efforts against coronavirus expand

Ford making reusable hospital gowns from airbag materials as efforts against coronavirus expand

April 14, 2020
Don’t Sweat NBC’s Decision to Cut Back on Television Ad Inventory

Don’t Sweat NBC’s Decision to Cut Back on Television Ad Inventory

April 14, 2020
Software firms sharpen focus on AI, big data as IT spending drops

Software firms sharpen focus on AI, big data as IT spending drops

April 14, 2020
Navigating turbulent times in your supply chain (TL:DR version)

Navigating turbulent times in your supply chain (TL:DR version)

April 14, 2020
  • Supply Chain
  • Logistics
  • Warehousing
  • Procurement
  • Shipping
  • More
    • Strategic Sourcing
    • Spend Analysis
    • Inventory
    • Contact Us
No Result
View All Result
United States International Supply Chain Commission
United States International Supply Chain Commission
Home Supply Chain

Managing supply chain risk in an economic downturn

by usiscc
December 7, 2019
in Supply Chain
0
Managing supply chain risk in an economic downturn
492
SHARES
1.4k
VIEWS
Share on FacebookShare on Twitter

Economists may not agree on the timing, but there’s growing consensus that the U.S. economy’s longest period of economic expansion in history will start to wane within the next few years.

When that day comes, supply chain managers will find themselves for the first time in more than a decade in a market of softening demand and increasing price sensitivity. As consumer spending slows, the ripple effects of excess inventories, price volatility, unused warehouse space and demand uncertainty could spread throughout the entire supply chain.

Experts say while economic forecasts can offer guidance, the best practice will be to involve the entire organization, keep a close eye on suppliers and look for subtle signs of trouble in the market.

Eyeing a potential recession

An October 2019 model by Bloomberg Economics analyzed economic conditions, financial markets and measures of stress to forecast a 26% chance of recession in the next 12 months. As profitability declines, companies will look for ways to reduce costs and may pull back on hiring, which could impact consumer spending, Bloomberg analysts said. And as spending declines, so does demand for many products and materials.

“I think it’s not a matter of if we’re going to have a downturn but when,” Chris Craighead, a professor of supply chain management at the University of Tennessee, told Supply Chain Dive. “It’s part of a typical business cycle. You’re going to have ups and downs. Some industries are severely affected and some are less impacted by it.”


“The financial pressures can ripple through the chain.”

Chris Craighead

Professor of Supply Chain management at the University of Tennessee


Compounding the issue is the fact that many supply chain managers are currently consumed with the uncertainty related to tariffs, Craighead said. Supply Chain Dive reported in October that nearly 70% of U, .S. electronic manufacturers earned lower profit margins as a result. IPC, an association representing the electronics manufacturing industry, noted many organizations have already been impacted by the “administrative and operational burdens” of keeping track of the rules and reallocating tariff costs.

“It’s likely they envision some type of downturn in the future, but I wonder how much time they’re allocating to it because they have current fires that need to be put out,” Craighead said.

Risk in a downturn

Supply chain managers already face some risks that are static regardless of the state of the economy — strikes, natural disasters and quality control issues are always present. But these risks can be amplified and heightened during economic downturns, Craighead said.

One of the biggest and most immediate risks is softening demand, which can lead to excess inventory. It can be challenging to “slam on the brakes” when times are good, Craighead said. As inventories pile up in warehouses and the volume of business no longer matches the inventory, costs can rise significantly relative to revenues.

“You’ve placed orders, you have contracts in place,” Craighead said, “but suddenly, demand can be reduced significantly depending on the product you’re dealing with.”

The risks of the softening demand can multiply. Declining revenues can put a pinch on cash flows and on labor requirements, Steve Banker, vice president of supply chain management at ARC Advisory Group, told Supply Chain Dive​.

Many supply chain leaders struggle to identify the right course of action and key demand planning applications don’t always work in a recession.

Increasing price sensitivity can also erode margins, Craighead said. A common problem is it “squeezes” the supply chain were organizations are left with excess inventory they have to discount while also trying to maintain the relationship with their suppliers. If the downturn goes on long enough, it can often lead to financial distress with partners, Craighead said. “The financial pressures can ripple through the chain,” Craighead said.

A command center approach to look for subtle signals

The winners in an economic downturn will be those that not only learn how to mitigate the risks and negative impacts but learn to capitalize on them. The best supply chain leaders will typically lean on their own talent as those in the trenches will often see signals of distress or a turnaround before analysts. While procurement and sales teams may sense market trends, financial leaders and other departments should also keep a pulse on the market.

“It’s almost like you get more of a command center-type approach, where you’re constantly trying to gather information, and you’re just trying to do the best you can to weather the storm,” Craighead said.

While common signs of a coming economic downturn could include a reduction in orders and increasing price sensitivity, there could also be other subtle signs. Sudden shortcuts in processes or differences in how a supplier operates could be a sign that pressure is rising. Even seemingly benign things like grass not being cut at a facility or changes in staffing could be signs of a downturn in business. “There could be good reasons for that but it’s really paying attention to those real subtle signals that you see, both on the demand and supply,” Craighead said.

As the prospects for a recession rise, organizations should also keep a closer eye on suppliers as a delay of payments from customers could push some into financial troubles, Baker said. A best practice is to identify which suppliers offer components that go into a high percentage of revenues and are a single source that no one else can supply. “We look at the financial health of a supplier using financial statements,” Banker said. “You may need to ask somewhat their contingency plans are and what you can do to help.”

Share197Tweet123Share49
usiscc

usiscc

  • Trending
  • Comments
  • Latest
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

April 15, 2020
‘Significant opportunity’ in Asia as supply chain integrates, consolidates

‘Significant opportunity’ in Asia as supply chain integrates, consolidates

January 3, 2020
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

0
Global Industry Analysis, Size, Share, Growth, Trends, and Forecasts 2016–2024 – ZMR News Reports

Global Industry Analysis, Size, Share, Growth, Trends, and Forecasts 2016–2024 – ZMR News Reports

0
PHOTOS: Ottawa firefighters respond to warehouse fire

PHOTOS: Ottawa firefighters respond to warehouse fire

0
These inventory trackers will notify you when hard-to-find items are back in stock

These inventory trackers will notify you when hard-to-find items are back in stock

April 15, 2020
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

April 14, 2020
  • Privacy Policy
  • Terms of Use
  • Disclaimer
  • DMCA
  • Contact Us

Copyright © 2021 United States International Supply Chain Commission (usiscc.org)

No Result
View All Result
  • Supply Chain
  • Logistics
  • Warehousing
  • Procurement
  • Shipping
  • More
    • Strategic Sourcing
    • Spend Analysis
    • Inventory
    • Contact Us

Copyright © 2021 United States International Supply Chain Commission (usiscc.org)

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

SAVE & ACCEPT