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Preparing Your Supply Chain for the Next Recession

Staff Writer
2/13/2019 | 5 min read
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Preparing Your Supply Chain for the Next Recession

The economy looks good right now. We’ve seen several years’ worth of solid growth across most sectors, and unemployment is at an all-time low.

However, many economists question whether this growth will ultimately lead to a recession within the next few years, especially as the trade war between the United States and China raises concern about the state of the economy. Some economists are even warning that the trade war could directly spur the next recession.

Recession-Proofing Your Supply Chain

During the 2008 financial crisis, the manufacturing sector took a big hit. It’s likely that severe dips in demand and investment could affect manufacturing in a similar way, should another recession occur. In many circumstances, this means that sales numbers would be quickly eclipsed by costs, leaving companies in the red.

The reality is that another recession is inevitable at some point, and companies of all kinds must prepare for that eventuality and how it may impact the supply chain. Below are some strategies you can put into place before recession strikes to help protect your supply chain — and, in turn, your bottom line.

Get Good Numbers

It’s crucial that you truly understand your demand, and that requires accurate forecasting. You’ll need a good team to handle this. Make sure that you’re employing dedicated, bright people who understand the complexities of forecasting, and provide them with the information and tools they need to ensure accuracy and establish a solid plan for demand flux.

Enforce Payment Terms

It’s difficult to get customers to pay up in a timely manner when money is tight all around. It’s even more difficult if you haven’t insisted on prompt payment during flush times. Payment terms must be enforced from the beginning of every contract so that a clear precedent is set. It’s difficult to get by on credit in a recession, so late payments for goods or services can be devastating.

Control Inventory

Whether dealing with raw material or finished products, excess inventory doesn’t earn money, and in many circumstances, it will end up costing you. There are several ways you can keep your inventory in check, however. For example:

  • Use standard materials. Custom orders are more complicated to return, and you’ll typically have to pay for them even if you can’t use them. You’re better able to avoid unnecessary stock when using standard materials, and the reduced lead time associated with industry-standard products can improve your company’s flexibility. Plus, you can wait longer to order standard materials, so demand projections are more accurate.
  • Plan supplier contracts with risk mitigation in mind. Write them in a way that allows risk to be distributed strategically and gives you an out on products with long lead times.
  • Scale materials ordering to match both your demand and your capacity.

Scale Labor

Labor costs must also be able to flex with demand. Make use of flexible scheduling, part-time positions, cross-training, and temporary labor to keep your workforce sustainable in the long term, even when times get tough.

Create a Flexible Cost Structure

Setting up your supply chain in such a way that the majority of your costs are directly related to production can help your company better endure tough financial times. Many companies still turn to outsourcing to avoid hard costs that must be paid regardless of production activity.

Setting Up Your Supply Chain for Success

A flexible supply chain is a resilient supply chain. Taking the time to prepare yours for the next recession will help ensure a strong bottom line and overall stability, setting up your company for continued success in today’s shifting economy and ever-evolving marketplace.

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