In the last few weeks, I’ve participated in three different economic events, talked with trusted advisors and seen what clients are experiencing. From banks to economists to executives, differing views emerge. But, what is the bottom line? According to the pundits:
- Best case: economic stagnation
- Worst case: recession with continued inflation
Here are a few noteworthy stats:
- Money supply expansion: it has expanded at a breakneck pace with stimulus etc. ($5 trillion to $20 trillion) – not pocket change
- Inflation remains high: Although inflation is coming down, it is still quite high vs. target inflation. Projections range from 3.5% to 4.5% at the end of 2023. Bringing it down the last few percentage points is likely to be FAR more challenging than the first 5 or 6 points.
- GDP growth: flat at best; recession is likely to some degree
- Workforce deficit: There are 1 million less people in the workforce now vs. pre-COVID. Companies still need key talent.
- Fed: Interest rates will continue to rise. The only question is the rate and pace. The oddity is that the goal is to increase unemployment to cool the economy yet there is a shortage of workers vs. pre-COVID. What unintended consequences might arise?
- Treasury yield curve upside down: Short term rates high (driven by the Fed) way above long-term rates (driven by the market).
- CEO survey: According to a Conference Board survey, a recession is the biggest worry.
- Business equipment investing: Down by 3.7% in the 4th quarter.
- Supply chain remains out of alignment: The bubble has moved from shortages to inventory gluts and the bottleneck continues to move. The implicit goal of the economic levers being pulled is to decrease demand instead of increase supply, but what will be the unintended consequences? Shortages remain in several sectors such as baby formula, services (just try to rent a car in Kansas City), baby Tylenol and more.
What Will This Mean?
We are in a period of VUCA – volatility, uncertainty, complexity, and ambiguity. Thus,
- Key challenges will remain: Navigating inflation, recession, global unrest, and more will continue.
- Yet more opportunities will arise than ever before: The smart companies will have more opportunities to grow and take market share from the weak and reactive that will set the segment leaders for decades to come.
For example, during the recession of 2009, clients that panicked and slashed inventories without looking at the big picture (and right-sizing inventory to preserve cash yet be able to take advantage of key opportunities) suffered badly with service as they realized they cut the wrong items in the wrong place at the wrong time. Service tanked and sales suffered. On the other hand, those who thought forward and invested in a key resource when everyone was laying off or increased inventory of a strategic material so that they could take advantage of an opportunity when a competitor ran out leaped forward as the competition treaded water. Use a touch of common sense, and you’ll thrive.
Listen to our recent Supply Chain Chats about what to expect, how it relates to what’s going on with Ukraine, China, rail strikes, and more, and most importantly, what you should do about it.
Where Should We Focus?
Take quick action and consider the following priorities:
- Margin: every client has a multitude of opportunities to increase margin from pricing to cost reduction to automation to redesign, opportunities abound.
- Inventory: cash is king. Think ahead about risk and demand, right-size your inventory and capacity with planning best practices, and align with a SIOP process. In essence, proactively balance demand and supply instead of letting demand spikes/ troughs or supply disruptions or imbalances drive you.
- Ability to scale quickly: To take advantage of opportunities yet navigate tough times, build flexibility and scalability into your capabilities.
- Technology: Utilize the “right” technology to provide a superior customer service, improve margins, accelerate cash flow and build sustainability, repeatability, and efficiency into your processes. Why not fully leverage already existing assets to your advantage?
- Talent: Do you have the talent to “see” and take advantage of the opportunities? One of our key clients hired a key engineer at the height of the recession, and he fueled growth for the next decade with product designs and much more. Another client invested wisely when the competition battened down the hatches. They soared as opportunities emerged.
- Remember the fundamentals: The best prioritize excellence of fundamentals and results follow. Inventory management is one of these priorities.
- Think big & be bold: Now is the time to take the leap to the future while the competition cowers in the corner.
Please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Several of these types of topics will be included in our forthcoming book, SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth.