Many factors affect the supply chain, including increased interest rates, wars, and pandemics. This economic downturn will impact the supply chain, and here’s how.
Lower Demand for Goods
When the economy worsens, there is less demand for goods. Consumers will look for ways to save money and not spend their precious dollars on items they deem frivolous. They’re saving money for the necessities, such as food, clothing, and shelter.
This cutback on spending will ripple into the retailers. Stores won’t want to stock shelves with as many items, and manufacturers will have to change production schedules to accommodate. For example, the lower demand for goods extends to the construction industry as well, as we’ll see a decline in the number of new homes built. Suppliers will realize the decreased demand for lumber, cement, and other infrastructure supplies and therefore produce less.
Labor Changes
An economic downturn creates a job seekers market at first. Employment is low, and businesses struggle to fill positions. Companies aren’t seeing retention, and people applying have their choice of multiple positions.
As an economic downturn advances, however, people begin taking jobs they wouldn’t normally turn to, to make ends meet. Factories that were struggling to fill the crucial roles that keep the factory going will see an increase in applicants to fulfill these positions during a recession. More people turn to labor-intensive jobs as a steady means of income, helping the supply chain stay afloat.
Lower Prices
Over the past year, consumers have watched the prices of goods soar due to supply chain issues. Now, the prices will begin to decline as the demand for items decreases. These lower prices directly impact the supply chain, cutting companies’ profits. Retailers find it challenging to sell the same amount of product, and this difficulty causes producers, distributors, and suppliers to see the impact on their profits.
Because of this, businesses will look for other ways to cut costs amidst the thin margins. Cost reduction will be a significant asset to help them build an advantage over the competition.
Understanding how the economic downturn will impact the supply chain will help you better understand what’s happening as society braces for a recession. It’s a sobering time for many of us, especially supply chain executives.
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