Is your supply chain recession-ready? Make it so with expert advice from Gartner

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High inflation for direct materials and other resources continues to challenge supply chains. Meanwhile, declining currency values, cuts in discretionary spending, rising interest rates and other key indicators point to a future recession. To weather these disruptions, supply chain plans must change — but how?

To help guide supply chain officers through this challenging landscape, Gartner® recently published a report by Senior Director Analyst Paul Lord outlining three actions to take to respond to high inflation and recession risk.

Balance through reoptimization

Higher interest rates and material prices have driven up the value and opportunity costs of inventory. Lord advises supply chain planning leaders to propose limiting production quantities where possible and where the potential for impact is greatest to balance capacity economics with freight and inventory costs.

If time allows, a more thorough baseline analysis of performance would support communication with stakeholders about what’s driving these changes to the supply plan and the primacy of agility for managing risk during this period.

Supply plans can also be modified in ways that extend across the network, including adjustments to product sourcing and capacity rebalancing between different regions. Consolidating stocking locations to reduce inventory levels and increase use of lowest-cost transportation lanes can also help support businesses in the event of a recession.

Facilitate demand balancing and margin management

Greater transparency and granularity in projected supply costs would enable more informed decision-making as businesses prepare for a recession.

With more accurate, fine-tuned estimates of the net profitability of each pricing, demand balancing and allocation decision they make, supply chain planning leaders can more carefully consider commitments that involve longer lead times. These could become high-cost inventory with much lower selling margins — or even write-offs — should product prices drop as the market softens.

Liquidate excess commodity stocks

Producers of commodities based on feedstocks (e.g., metals, gas, oil, agricultural products) have additional risk to manage ahead of a possible recession. Driven by rising commodity prices, demand and supply rebalancing could trigger a market correction that imperils existing positions of discretionary inventory and commitments to supply with longer lead times.

Lord advises supply chain planning leaders to identify, evaluate and propose options to reduce such inventory within the next six to nine months.

Weather any economic storm with advanced planning

These are just a few actions that can put businesses on more secure footing as they navigate impending financial disruptions. For more details on these tactics and how to put them to work, read the full report here.

To prepare your organization further, turn to Kinaxis. We can help drive costs out of your supply chain with the agility and resilience required to weather any economic storm. Our solutions help supply chain planning leaders quickly understand trade-offs across cost, revenue, customer satisfaction and other factors, and can deliver prescriptive recommendations on the best course of action based on easy-to-configure strategic objectives.

Gartner, Quick Answer: Adapt Supply Plans in Response to High Inflation and Recession Risk, Paul Lord, 24 June 2022.

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

 

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