Recession and Logistics Industry: What All We Need to Know

The global economy is in a turbulent state. Inflation levels are now higher than they have been in many years. Several experts believe that recession is upon us. The previous recession positively affected the logistics business since consumers moved from services to resources. This significantly raised the requirement for logistical services.

Now, the current recession is not similar to the previous one, and this has made supply chain planning for the future more challenging. Supply chain managers must consider some of the significant distinctions between the current situation and previous recessions to effectively control expenses and handle demand volatility before a likely recession.

Why a recession is being predicted

The economic climate, in general, is now uncertain. Concerns of a recession are being exacerbated by record inflation and the fiscal responses of the government. But other signs of a recession, including term and credit spreads, indicate minimal danger.

Some projections predict an increase in unemployment, but it is still at a multi-decade low for the time being. There are also ongoing geopolitical tensions around the world due to the Russia-Ukraine war. Additionally, the supply chain is in a significantly and profoundly different state than it was earlier.

Comparison between current and previous recessions

When formulating strategies, supply chain managers should consider two significant contrasts between the current recession and previous ones.

Low preparedness for risk

Supply networks have experienced high volatility from 2019 to 2022, and risk occurrences are multiplying. The volume and rate of these interruptions seriously threaten the continuity of the supply chain. Numerous supply chains now have less talent, supply, and freight accessible for a variety of reasons, including:

• Several supply chains, like retail, have run out of their essential supplies and have to deal with similar restrictions upstream.
• There are far more unfilled positions than job seekers, making the employment market highly tight.
• Due to travel limitations brought on by the pandemic, there is a shortage of workers, and unscrupulous freight players have caused unsustainable bottlenecks in the international transport and freight systems.

Demand-driven vs supply-constrained market dynamics

Another significant distinction is low resource availability. While demand-driven marketplaces preceded prior recessions, today's markets have become supply-constrained. Supply chain executives entered previous recessions with inventory levels and resources adequate to fulfill demand. Nevertheless, given the abrupt and persistent decline in demand, they faced the prospect of keeping too much stock and associated costs.

Using Mojro's ExecuteWyse can assist managers in making real-time data-driven decisions and keep them updated on any delayed or missing deliveries. This will, in turn, improve customer satisfaction driving more demand. This will help businesses to remain on top of the demand-driven market conditions.

The current market is supply-constrained, meaning supply frequently falls short of demand. Managers can use Mojro's PlanWyse for daily dynamic planning, enabling them to respond to changing supply conditions. PlanWyse also offers users what-if modeling, which enables businesses to be prepared for all market supply conditions.

The current downturn offers the supply chain a chance to restore supply and demand equilibrium while preparing for future disruption.

How to steer the supply chain in the right direction during the recession

When planning for a prospective recession, supply chain executives must consider the difference between previous and current recessions. Executives must refrain from making strategy adjustments based on hasty estimations of the length and severity of the coming recession, as well as the possibility and timeframe of a complete recovery.

The steps that supply chain executives can take to steer the supply chain in the right direction during the recession include:

• Executives should determine the most important resource constraints and use those to direct the cost-cutting strategy. However, several supply chains are having trouble keeping up with demand in the present circumstances. The restrictions they face can help decision-makers decide the number of raw materials, inventory levels, manpower needed, and freight partners.
• Executives should redefine the company's preferred risk appetite to find strategic decision-making opportunities. Before 2019, executives, during risk management, assumed that supply chains would be able to recover from every given high-impact interruption before another one happened. But this proved consequential in subsequent years. So, supply chain managers must reevaluate the business's risk appetite in light of the current situation.
• Executives should make decisions based on forecasts for the recession recovery only when the supply chain reaches its intended volume. The leaders can make strategic choices based on the recession's length and the predicted recuperation pace for the supply chain's worst bottlenecks.

Conclusion

Though the global economy and logistics industry are awaiting troubling times, supply chain managers can combat the recession through informed decisions. Despite the challenges ahead, there are reasons to be optimistic about the future of logistics.

By understanding logistics' unique role in our economy and preparing for potential bumps in the road, supply chain leaders can ensure that this vital industry continues to thrive for years. Businesses can also use cutting-edge logistics software like Mojro to optimize critical logistics planning processes for better efficiency.

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