No one ever wants to be part of an economic downturn or recession. Supply chain professionals have an especially difficult task during these hard times. While recessions don’t happen often, they’re cyclical and are certainly a reality. Supply chain professionals must always be prepared in case there’s a recession.
A recession can be defined as a business cycle contraction when there’s a general decline in economic activity. Basically, when the masses stop spending money for a given time, the economy experiences a recession. This could be triggered by a multitude of events, such as a financial crisis, an external trade shock, an adverse supply disruption or the bursting of an economic bubble. The US encountered the last economic recession in 2008-2009, the Great Recession, and is entering another in 2020 after coronavirus (COVID-19) and other factors tipped the scales.
During a recession, there’s generally more supply chain disruption, which can’t always be avoided; however, prepared, proactive supply chain teams can trek through the rough terrain of a recession unscathed. Below, we recommend four specific tactics to help make your supply chains more resilient to recessions.
4 Ways to Recession-Proof Your Supply Chain
1. Create Strong Partnerships Through Assessments
Good supply chain professionals foster good relationships/partnerships, including all suppliers from managed service providers to manufacturers to engineering partners. To ensure a recession-proof supply chain, you must build strong partnerships; it’s about being proactive, so trying to build or create partnerships during a recession could be too late. Whenever you’re considering awarding a supplier for work, ask yourself, “What happens if we go into a recession, and how does this supplier make me less vulnerable?” Supplier Assessments are a great way to create and build strong partnerships. Be sure to request the following to better understand the potential supplier for the short and long term:
- Supplier Capabilities Assessment
- Asses supplier’s company information, capabilities, equipment, etc.
- Supplier Sourcing Assessment
- Asses supplier’s ability to comply and successfully carry out your program and meet your organization’s terms
- Supplier Plant Assessment
- Asses supplier’s facility and ability to manufacture, assemble, or service your program requirements
- Supplier Financial Assessment
- Asses supplier’s financial position, debt, Z-Score and past/forecasted revenue
The above assessments will ensure you know the specifics of each supplier you’re partnering with from the beginning so you can be ready when a recession hits.
2. Have Contingency Plans
Contingency plans should be built into your organization’s overall supply chain strategy. During a recession, there are many smaller or mismanaged organizations that go under or get acquired. Are you prepared for your number one supplier going out of business? Likely not. But you can be proactive from the onset and put yourself in a better position if a recession were to happen by making sure you have backup suppliers.
Based on supply chain best practices, you likely quoted the program out to multiple suppliers at the beginning. This is a good place to start. For example, say you have a program where you are sourcing multiple injection molded parts and the economy goes into a recession and the molder you are currently using, shuts their doors. What should you do? Turn to a trusted supplier you quoted and assessed at the beginning of the program.
Also, throughout any program, be sure to frequently speak with these contingency suppliers. They’re clearly interested as they provided you a quote. Sure, they may be displeased they didn’t win the program the first time around, but they’ll be happy to take it over if you run into issues. Make sure they’re capable to not only run the parts, but also to transition the tools since there will likely be current tools in place. Recession-proofing your supply chain means thinking ahead and preparing with contingency plans.
3. Automate as Much as Possible
During a recession, strange things can happen from mass panic to layoffs. Communication is of the utmost importance in times like this. Automating that communication is especially important. Create a Plan for Every Part (PFEP) to store all the information you need for a given part or program in one place. Utilize a cloud-based software platform that allows users to communicate either in real time or through agile task management. You’ll also want a platform that allows for contact storage and the ability to quickly engage suppliers as needed. During a recession, you need to find creative ways to do more with less and do things more efficiently. The only way to do this is via automated software platforms or tools.
4. Outsource to Improve Efficiency
With automation, a supply chain professional must look for ways to gain as many efficiencies as possible during a recession. Outsourcing is a very valuable model that can not only lead to productivity, but also to a more flexible costing model, which is critical during tougher times. Figure out what your team and colleagues are good at and what could be done more efficiently by hiring a third party. Logistics and supplier development or quality come to mind for the most outsourced supply chain-related activities. Outsourcing also allows for a variable cost model versus fixed costs, which will improve your cash flow. This model could better set you up for taking a recession head on.
Recessions, while infrequent are very real and can cause major supply chain disruptions. It’s important for supply chain professionals to be as proactive and prepared as possible. To ensure a recession-proof supply chain, you must proactively carry out the following: create strong partnerships through assessments, have contingency plans, automate as much as possible, and outsource to improve efficiency. No one wants to face a recession, but it’s the supply chain teams who are prepared with these recession-proof methods that’ll come out ahead of the game.