As inflation rates rise in economies around the world, and a recession might be looming, there are four ways chief supply chain officers (CSCOs) can prepare their leadership response over the next months, according to Gartner.
“While CSCOs primarily focus on developing strategy and enabling organisational capabilities, the economic headwinds they experience these days call for a steadying influence amid reactive stakeholder tendencies, such as defunding strategic investments and slashing overhead costs,” said Paul Lord, Senior Director Analyst with the Gartner Supply Chain practice.
Gartner analysts have identified four leadership priorities for CSCOs to respond to high inflation and recession risk.
Position flawless execution as the supply chain’s primary mission
Most supply chain organisations have already developed plans for improving efficiency to offset a normal inflation rate. CSCOs should encourage their teams to implement these plans while remaining focused on their critical role in fulfilling demand to capture margin.
Let the planning team rise to the challenge
An economically difficult situation is a good opportunity for CSCOs to evaluate and develop their planning teams’ capabilities and processes. For example, higher interest rates and material prices should prompt reductions in production batch sizes, where possible, to rebalance capacity and working capital economics.
Businesses are responding to high inflation with actions to manage margin and cash within sales and operations planning (S&OP). Findings from a Gartner survey conducted in May and June 2022 among 130 business executives found that 57% of manufacturing and retail companies have been able to maintain margins with pricing actions and are making little or no changes to their spending plans. It also found that service-centric business models are having more difficulty raising prices to maintain margins and 17% have been forced to extend longer payment terms to their customers.
Manage cost reduction carefully
Most supply chains already operate with very little overhead costs. However, periodic checking demonstrates due diligence to the C-suite. Another way to reduce costs and further improve efficiency is role consolidation. CSCOs can, for example, consolidate functions such as site quality, safety, environmental compliance maintenance and continuous improvement into fewer teams with improved focus and alignment.
Protect investment spending
One learning from the last period of the economic downturn was that growth leaders reintroduced capital expenditure after a recession much faster than their peers. That’s why CSCOs should be protective about their planned technology investments to not fall behind their competitors.
According to the Gartner survey, manufacturers and retailers are most protective of spending on product innovation, talent development and technology investment for price analytics and operations automation. Service-centric companies are most protective of technology investments such as back-office automation and operational visibility for increased efficiency.