Stay close to supply chain partners to weather economic storms
Supply chain managers aiming to weather economic uncertainty should monitor pricing data and stay close to supply chain partners, a webinar was told. The CIPS-organised webinar – The Global Economy – Disruption, Inflation & War. What Should Supply Chain Managers Do Now? – was told the US and UK remained on a knife-edge in terms of the probability of recession next year. John Glen, CIPS economist, said: “You’ve got to get close to those supply chain professionals who can help you manage the risks in those supply chains and then ally that with all of the data.” Jason Miller, associate professor and Interim chair of the Supply Chain Management Department at the Eli Broad College of Business at Michigan State University, said: “Closely watching those [pricing] data is the best strategy you can have.” Miller also emphasised the importance of indexing prices in contracts. “Make sure those contracts are indexed reasonably well,” he said. “Recognise there is still rampant supply shortages that are affecting companies really in every industry here in the US and so I think there’s been probably too much rhetoric that things have really improved on that side, but in reality they really aren’t that much better.” The webinar was told cost-driven inflation – caused by higher input prices rather then excess demand – was driving up prices and the Bank of England’s response of raising interest rates risked “trashing the economy”. “Increasing interest rates is not going to solve the war in Ukraine, is not going to drive fuel prices down, is not going to drive agricultural prices down,” said Glen. “I think we need to think carefully about how we use that blunt policy tool.” Glen also said productivity had been overlooked with too much focus on low-cost labour and inputs and not enough emphasis on high wage, high-innovation jobs and industries. The webinar was told there were three main areas of risk: 1. A slowdown in China China’s massive manufacturing capacity has kept prices low for decades and acted as a major deflationary force, but factors such as ongoing Covid lockdowns and risks to the country’s property market throw this into doubt. “The days of China being the world’s factory and keeping inflation low on consumer goods is gone,” said Miller. While there is evidence of reshoring and nearshoring production from China the picture remained unclear. 2. Geopolitical tensions Risks include tension in the South China Sea over Taiwan and an escalation of the Ukraine war – such as Russia using a nuclear device that brings in Nato into the conflict. 3. Black swans These could include Covid, inflation, supply chain disruptions, conflicts, and cyber attacks. Miller said there was a 50-50 chance of an economic “soft landing” in the US, while Glen said the odds were 60-40 that there would be a recession in the UK. NOW READ
