How Supply Chain Can Help Navigate a Recession

After 2019-2020, the supply chain industry has learned a lot about economic disruptions and how to survive. While many firms struggled and did not make it through, we are now a better industry, far more prepared for uncertainties. Today, however, we face a new challenge of recession.

With lingering effects of the pandemic, geopolitical threats, and supply chain shortages, the economy has finally stretched too thin. The signs of recession we see today are an opportunity to prepare in the supply chain field.

How can we navigate a recession? We've recently learned how to deal with sudden changes, but now we need to shift our mindset. In a recession, we must prepare to operate appropriately for an extended period until the economy returns to normal and grows again.

Together, we can explore ways the supply chain and logistics industry can prepare for a recession.

Common Ways a Businesses Prepare for Recessions

Recessions hit everyone differently. Harry Truman said it perfectly: "It's a recession when your neighbor loses his job; it's a depression when you lose yours." Likewise, the supply chain industry will face different challenges depending on the economic sectors they service, their size, and other vital factors.

The primary differentiators will be the firm's size and safety net. For example, a small firm is more vulnerable than a larger company and must develop a more conservative plan. On the other hand, a more prominent firm can re-organize its process, assets, and plan with more time and resources.

To get a better understanding of how industries prepare for a recession, the following are common reactions:

1. Company May Freeze Hiring

One of the first industry reactions is to freeze the hiring process. For example, Mark Zuckerberg of Meta announced that they would reduce hiring. He went further by saying, "You might decide this place isn’t for you, and that’s ok with me," an attempt to weed out employees who didn't align with the company's new values and vision. As you can imagine, Zuckerberg's remarks will likely affect company morale.

While this may help with costs in the short term, there are apparent setbacks. When companies limit their talent potential, they risk eroding their long-term future. Great talent is what makes companies successful and helps them weather challenges.

The Harvard Business Review states: "A recession is the best time to acquire resources for the forthcoming expansion, all while your competitors are cutting back. The biggest and most important resource — talent — is more readily available now than during an expansionary phase."

Companies should rely upon specialized recruiting firms to help them balance financial concerns with the right talent to help navigate a recession.

2. Company May Stop Providing Pay Raises

Another common step is freezing financial incentives like a pay raise. Again, this gives companies breathing room and can better position them for the short-term challenges.

Most employees will understand a temporary pause, but it should be preceded with transparency. For example, employees will be more understanding of the company's leadership if it states why it needs to be done (and that it will apply to everyone) with a general mile-marker or timeline. Then, the company should continue communicating and updating the team throughout the recession.

Company culture will be critical. Employees who believe in a greater purpose for the firm will be willing to sacrifice.

3. Company Lets Go of Employees

Layoffs may be the first and most common way a company tries to survive a recession. They see the immediate savings and decide to pull the trigger. While there may be a case when it is necessary, it can be damaging to the company.

First, you lose critical talent. You need great people to help you survive and possibly thrive during a recession. Second, you destroy morale. If your team is uncertain about their future, you can't expect them to work their best (when you need them the most). This, along with several other reasons, is why exploring all other options is essential before thinking of layoffs.

Harvard Business Review states: "[companies in the study] that deploys a specific combination of defensive and offensive moves has the highest probability—37%—of breaking away from the pack."

Firms that survive must adopt defensive and offensive strategies that work best for them.

4. Companies Avoid Investments and Spending

Another common tactic is by halting certain expenses and cutting back on departments. We usually see the following:

They cut back on spending and marketing. Every company should review where its resources are going and find ways to cut back on low-impact spending. But marketing budgets and other critical departments that affect sales and processes should be well-researched. While many firms may cut back on marketing or certain investments, many will see a recession as a reason to increase funding if it can be measured with better results.

They stop investing in new product launches. Companies stop investing in new products and focus on the essentials. Pausing a planned product can help re-focus the company and better position it for new developments in the future once they have a better grip on the economy.

They cut back on R&D. Companies often pause or minimize what they spend on research and development. While a possible strategy for short-term survival, companies should reflect on their future strategy and where their resources should go to prepare for it.

It All Depends On You

Many of these strategies will depend on the company. Some could cause harm, and others could help the organization excel during a trying time. Each case is unique, so great leaders and talent will become essential during a recession.

While these are common reactions for many industries, what are the unique steps a supply chain firm can do today to plan for a recession?

1. Assess Your Talent

Can your talent withstand a recession? Do you trust them to lead in a time of uncertainty? Thankfully, you've already learned the answer to that question in the last couple of years. Think about your team and decide if you need to make staff changes, add training, or recruit a key leader to help put everything together.

Your team will be the one that leads the supply chain firm to success, and they must be ready for unpredictable challenges.

2. Choose the Right Talent for a Recession

Once you've evaluated your team today, decide whether you need top talent to help you rebuild the firm for a recession and post-recession.

These team members should show hard and soft skills and a proven record of facing impossible challenges with extraordinary effort, critical thinking, and results.

3. Prepare for Your Employees

Once a supply chain firm has built the right team for a recession, it should ensure that the resources are in place to support them.

Can you currently afford the team, and is there a safety net if revenue declines? Does the team have the right learning resources to develop solutions to unique problems? Do they have a direct line of communication with leadership? Ask the right questions as you prepare for the near future.

4. Focus on Core Operations

The supply chain firm should consider their operations and how they can focus on their most prosperous areas. What operations can withstand the recession, and what areas will hold the firm back?

This is an important time to re-focus the firm and decide on what is essential.

5. Use What You Learned from COVID-19

One thing we learned with the pandemic is how to handle changes overnight. While a recession may be a slower process, we can use those lessons to navigate the uncertainty.

At SCOPE, we've explored many of these steps. We can establish supply security by developing relationships, a better line of communication, diversified locations, and partner sizes. As an industry, we’ve also created innovative processes and strategies for several economic situations since the pandemic provided countless scenarios and challenges.

Supply chain firms can use this to master the industry's logistics, procurement, and essential components.

6. Evaluate Your Partnerships

Supply chain firms depend on their partnerships. Whether in the procurement process, logistics, or their accounts, they need to know how everyone is fairing during the recession. If firms have a pulse on the situation, they can predict risks and upcoming challenges.

Firms should connect with their partners and discuss the challenges they expect from one another.

For Employees During a Recession

Team members will likely feel nervous during a recession. It's understandable, considering the uncertainty they face. That's why they should evaluate their current situation.

Employees should find ways to be a "linchpin" or provide remarkable results and become a key asset to the company. Supply chain firms need your expertise and innovation more than ever, and every employee has a chance to lead and become indispensable.

Employees should connect and build a relationship with a recruiting firm specializing in the industry. They could be a part of an active pipeline if they lose their job or notice insecurity. Their relationship with a recruiting firm can save them time and money.

For Job-seekers During a Recession

Searching for a job is intimidating on its own. It's even more nerve-wracking during a recession. Job-seekers shouldn't do it on their own. Instead, they should partner with a recruiting firm to increase their chances of a job in a challenging climate.

Job-seekers can update their resume for keywords, and essential industry needs related to recession issues. They can network on platforms like LinkedIn to find healthy firms searching for a professional.