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What can Supply Chain Executives Do in the Face of Rampant Inflation?

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Among other Actions, Gartner Recommends Keeping Up Spending on Innovation, Talent, and Technology

 
Aug. 24, 2022
SCDigest Editorial Staff
     

Supply Chain Digest Says...

 

Gartner says one learning from the last period of economic downturn was that growth leaders reintroduced capital expenditure after a recession much faster than most companies.

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In recent months, the US – and indeed most of the world – is battling very high inflation, with the US Consumer Price Index (CPI) up year-over-year in July a whopping 8.5%, with similar CPI numbers the months before that.

High inflation impacts almost everything, notably consumer behavior and the way businesss invest and think about procurement. Walmart, for example, is seeing a strong rise in food sales but rapidly falling demand for apparel and home goods.

While to a large extent inflation is largely out of the control of supply chain executives, there are actions they can take to mitigate the impact, according to the analysts at Gartner.

This week, Paul Lord, senior director with the Gartner Supply Chain practice, observed that “While CSCOs primarily focus on developing strategy and enabling organizational 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.”

Gartner research has identified four leadership priorities for chief supply chain officers (CSCOs) in response to high inflation and related recession risk.

Those are:

Position Flawless Execution as Supply Chain’s Primary Mission: Gartner says that most supply chain organizations 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, Gartner adds.
For example, higher interest rates and material prices should prompt reductions in production batch sizes, where possible, to rebalance capacity and working capital economics.


A Gartner survey of 130 business executives conducted in May and June 2022 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. (Note: SCDigest believes the results would be different if the survey was conducted today.)


 

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Manage Cost Reduction Carefully: Gartner says that most supply chains already operate with very little overhead costs. It adds that one way to reduce costs and further improve efficiency is through role consolidation. Gartner says that 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.

“It’s important to focus on maximizing the ability of the supply chain to control inventory and optimize the cost of product supply,” Lord said, also noting the risk of distraction from the primary mission of operating effectively to fulfill demand and serve customers.

Protect Investment Spending: Gartner says one learning from the last period of economic downturn was that growth leaders reintroduced capital expenditure after a recession much faster than most companies. As a result, 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.

Forward buying? Use of e-auctions? Rethinking inventory, transportation and service tradeoff curves? Those must be old school inflation tools.


Any reaction to Gartner's recommendations? Let us know your thoughts at the Feedback section below.

 

 
 
 
 

 

 

 

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