No supply chain has been left unscathed by the COVID-19 crisis. The physical disruption affecting many sectors is well-known, but the accompanying acute recession will have a much wider and longer-lasting impact. Read on to learn our 3 tips to recession-proof your supply chain.
Depressed demand, government spending and corporate investment will continue well into 2021 and almost every business has had to tear up its early 2020 plans. Furloughs and other government measures that have helped cushion the immediate blow are soon to expire and expose more of the damage as we move into a supply chain recession. Only the wide distribution of effective vaccines will truly blunt the crisis in the near term.
Economic forecasts have been slashed. The International Monetary Fund’s (IMF) June forecasts showed global gross domestic product (GDP) slumping by -4.9% in 2020. While its 2021 forecast of 5.4% growth sounds a lot better, the global economy will still be 6.5% smaller than anticipated in early 2020. US economic confidence has lately suffered a body blow with infections surging in Texas, and Florida. Most Asian economies have emerged from lockdown, but their export markets in Europe and North America are depressed and the threat of renewed infection spikes is ever-present.
The UK has been hit particularly hard by the crisis, both in terms of infection levels and sectoral impact on key service and export-oriented sectors. The IMF forecasts a disastrous -10.2% GDP contraction in 2020, still shy of Spain and Italy’s 12%+ contractions, but worse than Germany (with -7.8%). The UK has the added uncertainties of Brexit to contend with, and COVID-19 has made reaching satisfactory trade deals by the time the ‘transition’ expires in December harder than ever.
Which industries will be affected during a recession?
We have been watching the impact on suppliers closely, and the sectoral trends seen in our data echo anecdotal accounts.
Construction was one of the hardest hit industries in a practical sense during the early stages of the crisis. According to our data, only 42% of the construction sector had the capability to work from home. Even now most sites can reopen, the sector faces deferred projects, declining demand, and consequent cash-flow issues. Office/factory construction is expected to be much weaker amid the recession and work-from-home trends.
Utilities has been able to weather the crisis better than many as demand has not collapsed to the same degree. Moreover, the sector has been deemed ‘essential’ and has been subject to fewer constraints on operations. Our data reports 75% of the utilities sector workforce have been deemed essential workers, but it is far from recession-proof. The sector will still feel the effects of a slower economy and lesser investment.
Transportation is one of the hardest hit sectors, where aviation was effectively grounded in many parts of the world for three months, and governments are still warning people against using public transport unless essential. Investment in transport infrastructure and capacity will be slashed as governments struggle to tame their ballooning deficits. With working from home set to become more prevalent beyond the crisis, demand for commuter transport and business travel will remain depressed.
The Oil and Gas industry is suffering less in terms of direct disruption, but the collapse in demand and the failure to cut supply sufficiently led to a slump in energy prices in early 2020. Although there has been some recovery since, there remains huge volatility and many indebted producers have already gone bust. This is most visible in the US. The industry has projected that up to 30,000 jobs could at risk putting the supply chain under additional pressure.
3 tips to recession-proof your supply chain
Plan a recession strategy. Define your short- and long-term goals during a recession, prioritising business critical processes as part of your Business Continuity Management. Focus on cutting discretionary costs, watching the market and supply chains intently, and take full advantage of government support while looking towards longer term strategy and growth opportunities.
Using supplier insights to understand risk. Take the time to build relationships with your suppliers. Utilising tools such as the Achilles Insights dashboards can provide a comprehensive view of the financial health of, and hidden risks in, your supply chain.
Being able to identify risks in your supply chain will provide you with the insight you need to make informed and intelligent decisions, and recession-proof your supply chain. Speak to our team of experts to learn more.