5 Ways to Prepare Your Supply Chain for a Recession
When a recession hits, many companies respond by increasing prices, discontinuing products, or taking other drastic measures to protect their profit margins. Yet focusing on your company's priorities and strategizing for the long term are equally important, as some cost control measures can drive away loyal customers, impact supplier relationships, and affect the scalability of your business.
A recession could lead to difficulty predicting customer demand, unpredictable supplier performance, disappointment regarding inventory movement, and challenges in managing inventory — all problems that can create a ripple effect throughout the supply chain. Preparing your supply chain for a recession requires strategic planning, utilizing the right technology, and gathering data-driven insight to power decision-making.
Discover actionable steps to improve your supply chain's recession readiness and gain a competitive edge in the market.
1. Audit Obstacles Affecting Your Supply Chain
Both anticipating and overcoming obstacles to supply chain management are critical during any economic climate, but especially in preparation for a potential recession. Supply chains that lack optimization are fraught with inefficiencies and risks, from supplier expectations to resource bottlenecks. Auditing your supply chain for existing or potential obstacles will help your business develop strategies to overcome them.
As you conduct a supply chain risk audit, consider the following elements:
- Customer service: Focusing on how a recession could impact your customer service significantly increases your supply chain's resilience. Consider how a recession could affect your order accuracy and fulfillment, then prioritize these metrics. You'll need to maintain your customers throughout the recession and as you move into recovery.
- Contingency plans: Developing contingency plans can help you identify supply chain partners and processes that may increase your risk. Create a comprehensive outline of your supply chain partners and their geographic locations to determine any risks, such as a concentration of distribution centers in one location. Find alternatives in case one partner is compromised. Working on a contingency plan may also help clarify how much safety stock to carry and how many backup workers to retain.
- Supply chain partner performance: Poor supplier performance can significantly impact your supply chain. Track supplier performance metrics such as accuracy, on-time order fulfillment, and quality to determine whether your company needs to find more effective suppliers.
- Visibility: Supply chain visibility is critical for identifying and managing risks. Having up-to-date order and shipment information allows you to pinpoint areas that need attention.
2. Prioritize Your Partnerships
Even during times of economic stability, one business can't do it all. Working with supply chain partners is critical for finding the solutions and resources your company needs, especially during a recession when labor can be scarce. Strengthening your supply chain relationships and outsourcing tasks, where beneficial, can help you boost efficiency in preparation for a recession and be better equipped to handle another one in the future.
Improving communication with stakeholders is especially important as you prepare your supply chain for a recession. When disruptions occur and changes are needed, it's important to have communication methods in place with your supply chain partners so that you each have time to pivot.
An effective way to prioritize your partnerships and improve communication is through supplier collaboration. Supplier collaboration utilizes technology to streamline document exchange and expedite supply chain processes to better connect with your suppliers. This technology helps your business and suppliers work toward mutually beneficial goals and increase visibility at every stage of the supply chain to speed up product delivery, optimize the customer experience, and streamline common tasks.
3. Embrace Automation
One of the most effective supply chain solutions during a recession is automation. Manual processes are time-consuming and error-prone, whether picking orders in a warehouse or communicating with suppliers. Many companies are turning to automation across multiple stages of the supply chain to save time, improve accuracy, and limit supply chain unpredictability.
With recent technological improvements in advanced data analytics and artificial intelligence, automation is critical for long-term competitiveness. Automation tools can improve customer demand forecasting and inventory allocation by enabling your company to respond to changes in real time. With up-to-the-minute inventory and order updates, companies can reduce delays and shortages across the supply chain.
Gathering data from past supplier performance and order fulfillment provides the insight needed to stay ahead of future supply chain disruptions. Automation makes it possible, providing data-driven insight for better decision-making. With this information, you can improve efficiency and allow your employees to spend time on more valuable tasks, reducing spending on manual processes.
4. Harness the Power of Better Insight
Data is incredibly powerful if you know how to leverage it. Simply gathering data through automation isn't enough to give your company the insights it needs to weather a recession. Several technologies are available that provide companies with usable insights they can harness to improve demand forecasting, supplier collaboration, and inventory management.
Because recessions have different impacts on supply chains, making decisions on historical data or early recession recovery projections tends to leave companies building their strategies on uncertainties. Instead, use the tools below to gather real-time information as it changes and respond strategically:
Manually entering information into your company's ERP system reduces timeliness and accuracy. One solution is to use ERP integrations that connect your ERP system with your accounting, inventory management, and sales systems. Integrations provide end-to-end visibility across multiple channels and support improved workflows. Your company can also enhance communication with suppliers by integrating EDI with its ERP system to streamline order processing.
Gain insight into your suppliers' performance with supplier management services. When done well, supplier management services reduce the burden on your team and enable your company to benefit from insights into supplier compliance, on-time rates, and more, so you can be more prepared for whatever comes next.
Vendor Managed Inventory
Inventory management is challenging during times of volatile customer demand. A vendor managed inventory (VMI) solution simplifies the process by creating suggested replenishment orders and capturing data on inventory movement. Combining VMI with collaborative replenishment enables supply chain partners to work together to increase inventory management efficiency. With TrueCommerce VMI, Conn's HomePlus improved replenishment forecasting and experienced fewer product returns and higher inventory visibility.
5. Focus on Long-Term Resilience
An impending recession is only one issue affecting the supply chain for manufacturers and suppliers, but there can be many sources. Global supply chain disruptions, from trade wars and political events to pandemics and natural disasters, have increased in the past several years.
One estimate tracked 11,642 supply chain disruptions in 2021, up from 3,700 in 2019. As these challenges become more common, businesses need effective ways to reduce the negative impact on their supply chains and optimize their processes to maintain supply chain resilience over the long term.
Increasing long-term supply chain agility requires developing a plan to meet company goals and emerge from the recession with a growth mindset. While a recession will likely demand that you make adjustments to your supply chain, optimizing it for the long term can begin immediately.
For example, outsourcing specific tasks to a third party could help your team optimize their energy and time for other mission-critical functions. Improving inventory management, reducing lead times, and enhancing process efficiencies can help your company weather a recession and set a course for growth.
Overcome Obstacles With Automation to Make Your Supply Chain Recession-Ready
Recessions create many new challenges for supply chain managers, and thinking ahead is the key to success. Preparing your company's supply chain for a recession requires data-driven strategies for improving efficiency, strengthening supplier relationships, and mitigating risk. With the right technologies and partners in place, your company can increase its data visibility and inventory management to withstand a recession and build a path to new growth.
The results of integrating technology such as VMI speak for themselves. You can amplify ROI thanks to automation-driven efficiencies that improve forecasting, reduce stock-outs, and increase the efficiency of truck utilization. Integrated solutions from TrueCommerce can help you optimize your supply chain network — boosting flexibility as the market shifts.
To learn more, reach out to a TrueCommerce representative today.
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5 Steps to Make Your Supply Chain Recession Proof