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Global Recession 2024: Threats and Risk Management Actions for Businesses

Keith Lewis 12th November 2023

A global recession is a period of significant economic decline that affects multiple countries. It is typically characterised by negative GDP growth, rising unemployment, and falling asset prices. Global recessions can be caused by a variety of factors, such as financial crises, natural disasters, and trade wars.

Supply Chain Risk Management Not Every Leaf Gets To Its Intended Location

The collapse of global freight trade in 2023 is a strong indicator that a global recession is imminent. Global freight trade is a key measure of economic activity, and its collapse suggests that businesses are cutting back on investment and production.

Threats

A global recession poses a number of threats to businesses, including:

• Reduced demand for products and services: During a recession, consumers and businesses spend less money, which can lead to a decline in sales and revenue for businesses.
• Supply chain disruptions: A recession can disrupt global supply chains, making it difficult and expensive for businesses to obtain the raw materials and components they need to produce their products and services.
• Access to capital: A recession can make it more difficult for businesses to obtain loans and other forms of financing, which can limit their ability to invest and grow.
• Increased competition: As businesses compete for a smaller pool of customers and resources, competition can increase, leading to lower prices and margins.
• Bankruptcy: If businesses are unable to generate enough revenue to cover their costs, they may be forced to declare bankruptcy.

Risk Management Actions

Businesses can take a number of risk management actions to protect themselves and grow through a global recession, including:

• Diversify their customer base: Businesses should reduce their reliance on a single customer or group of customers. This can help to mitigate the impact of a decline in demand from any one customer or group of customers.
• Shorten their supply chains: Businesses should try to source their raw materials and components from suppliers that are located closer to their production facilities. This can help to reduce the risk of supply chain disruptions.
• Strengthen their balance sheets: Businesses should build up their cash reserves and reduce their debt levels. This will give them a financial cushion to weather a recession.
• Invest in new products and services:  Businesses should continue to invest in new products and services, even during a recession. This will help them to stay ahead of the competition and position themselves for growth when the economy recovers.
• Develop contingency plans: Businesses should develop contingency plans for how they will respond to a recession. These plans should include steps to reduce costs, preserve cash, and maintain customer relationships.

Specific Risk Management Actions for Businesses in Different Industries

In addition to the general risk management actions listed above, businesses in different industries can take specific actions to protect themselves and grow during a global recession. For example:

• Retail businesses: Retail businesses can reduce their costs by reducing inventory levels,negotiating lower prices with suppliers, and closing underperforming stores. They can also generate new revenue by offering online shopping and other digital services.
• Manufacturing businesses: Manufacturing businesses can reduce their costs by automating production processes, sourcing cheaper raw materials, and reducing their workforce. They can also generate new revenue by expanding into new markets or developing new products and services.
• Service businesses: Service businesses can reduce their costs by negotiating lower rents and other expenses, and by using technology to improve efficiency. They can also generate new revenue by expanding into new markets or offering new services.

Conclusion

A global recession is a challenging time for businesses, but it is also an opportunity to improve operations and gain a competitive advantage. By taking the necessary risk management actions, businesses can protect themselves from the worst effects of a recession and position themselves for growth when the economy recovers.

Additional Tips for Business Risk Managers

• Monitor economic indicators closely: Business risk managers should closely monitor economic indicators, such as GDP growth, unemployment rates, and consumer spending. This will help them to identify early warning signs of a recession and take steps to mitigate the impact.
• Develop a risk management framework: Businesses should develop a risk management framework that identifies and assesses the risks they face. The framework should also include steps to mitigate and manage these risks.
• Test your risk management plans: Businesses should regularly test their risk management plans to ensure that they are effective.
• Communicate with stakeholders: Businesses should communicate with their stakeholders, such as employees, customers, and investors, about their risk management plans. This will help to build confidence and trust.

By following these tips, business risk managers can help their businesses to survive and thrive during a global recession.

Uncover the Key Strategies for Managing Supply Chain Risks and Boosting Your Business Development Ideas

There are several factors that can make supply chain problems worse, such as:

1. Global events: Disasters, pandemics, political instability, and economic downturns can disrupt global supply chains and make it difficult to source goods and materials.
2. Lack of diversification: Having a single supplier or relying on a limited number of suppliers can make a business vulnerable to supply chain disruptions.
3. Limited flexibility: Having inflexible or rigid processes in place can make it difficult to adapt to changes or unexpected events.
4. Lack of visibility: Limited visibility into the supply chain can make it difficult to identify and respond to issues as they arise.
5. Inadequate communication: Poor communication between supply chain partners can lead to confusion and delays.
6. Inefficient logistics: Poor logistics and distribution can make it difficult to move goods quickly and efficiently.
7. Dependence on just-in-time inventory: Relying on just-in-time inventory can leave a business with little buffer in case of supply chain disruptions.

Mitigating these factors can help a company to be more resilient to supply chain disruptions.

Why do businesses fail to take appropriate action to mitigate these problems adequately?

Businesses may fail to take appropriate action to mitigate supply chain problems for a number of reasons, such as:

1. Lack of understanding: Some businesses may not fully understand the potential risks and impacts of supply chain disruptions, and therefore may not prioritise addressing them.
2. Limited resources: Smaller businesses may not have the resources or expertise to develop and implement effective supply chain risk management strategies.
3. Short-term focus: Businesses may prioritize short-term goals and cost savings over long-term risk management, leading them to neglect potential issues in the supply chain.
4. Inadequate communication: Businesses may not have effective communication and collaboration in place with their suppliers, logistics partners, and other stakeholders, making it difficult to identify and address potential problems.
5. Lack of foresight: Businesses may not anticipate or plan for potential disruptions, and therefore may not have the necessary measures in place to mitigate the impact of these disruptions.
6. Overconfidence: Businesses may be overconfident in their current supply chain and logistics capabilities and may not see a need to make changes or invest in risk management strategies.
7. Limited budget: Businesses may not have the budget to invest in supply chain risk management strategies and technologies.

Overall, businesses may fail to take appropriate action to mitigate supply chain problems due to a lack of understanding, resources, foresight, or budget.

Where in the world do supply chain problems often arise?

Supply chain problems can arise anywhere in the world, but they are more likely to occur in certain regions or industries.

1. Developing countries: Many developing countries have less developed infrastructure, weaker governance, and higher levels of political and economic instability, which can increase the risk of supply chain disruptions.
2. Natural disaster-prone areas: Regions that are prone to natural disasters, such as earthquakes, hurricanes, and floods, can experience disruptions to transportation, communication, and power infrastructure, making it difficult to move goods and materials.
3. Remote or isolated locations: Remote or isolated locations, such as islands or areas with limited transportation infrastructure, can make it difficult and expensive to move goods, increasing the risk of supply chain disruptions.
4. Political instability: Countries with political instability or high levels of corruption can have difficulties in supply chain due to lack of transparency, unclear regulations, and lack of trust among trading partners.
5. Industries with low inventory: Industries that rely on just-in-time inventory and lean supply chains, such as technology and automotive, are more vulnerable to supply chain disruptions due to less buffer inventory.
6. Industries with long and complex supply chains: Industries with long and complex supply chains, such as fashion, textiles, and electronics, are more susceptible to disruptions due to the number of intermediaries and suppliers involved.

However, disruptions can happen anywhere and at any time, and it is important for businesses to have risk management strategies in place to mitigate the potential impact of supply chain disruptions.

When looking at at business development ideas what are 10 things to consider to ensure supply chain issues don’t delay or prevent business development ideas working well?

When looking at business development ideas, it is important to consider the following 10 things to ensure that supply chain issues don’t delay or prevent the ideas from working well:

1. Assess the potential risks: Identify and assess the potential risks to the supply chain, such as natural disasters, geopolitical instability, and disruptions to transportation and logistics.
2. Diversify suppliers: Have multiple suppliers and sources of raw materials, to minimize the impact of disruptions from a single supplier.
3. Develop a risk management plan: Develop a risk management plan that outlines steps to be taken in case of disruptions, including identifying alternative suppliers and logistics routes.
4. Increase visibility: Implement technologies and processes that increase visibility into the supply chain, such as RFID tagging and real-time tracking systems.
5. Improve communication: Improve communication and collaboration with suppliers, logistics partners, and other stakeholders to better identify and address potential problems.
6. Have buffer inventory: Have buffer inventory to mitigate the impact of disruptions, especially if the business rely on just-in-time inventory.
7. Consider the impact of crisis: Consider the potential impact of crises such as pandemics, and plan accordingly.
8. Use technology to adapt to disruptions: Use technology to adapt to disruptions, such as using AI and automation to identify and respond to disruptions in real-time.
9. Audit your supply chain: Regularly audit your supply chain to identify any potential vulnerabilities and make sure that supplier and logistics partners are meeting your expectations.
10. Continuously monitor and review: Continuously monitor and review your supply chain risk management plan and make necessary changes to adapt to new risks and challenges.

By considering these factors and taking appropriate action, businesses can increase the resilience of their supply chain and minimize the impact of disruptions on their business development ideas.

Who within small to medium sized businesses should take control of supply chain risk management during business development ideas planning and execution

Within small to medium-sized businesses, supply chain risk management during business development ideas planning and execution should be led by a designated individual or team. This person or team should have the responsibility, authority, and resources to implement and manage supply chain risk management strategies.

1. The CEO or General Manager: The CEO or General Manager of a small to medium-sized business is responsible for the overall direction and success of the company, and should therefore be aware of and involved in supply chain risk management.
2. The Operations Manager: The Operations Manager is responsible for the day-to-day running of the business, including managing the supply chain. He/she should be the main point of contact for identifying and addressing supply chain risks.
3. The Supply Chain Manager: The Supply Chain Manager is responsible for managing the flow of goods and materials throughout the supply chain, and should therefore play a key role in identifying and mitigating supply chain risks.
4. The Risk Manager: The Risk Manager is responsible for managing the risks that the company is exposed to, and should therefore be involved in supply chain risk management.
5. The Procurement Manager: The Procurement Manager is responsible for sourcing and acquiring goods and materials for the business, and should therefore be involved in identifying and mitigating supply chain risks.

It’s important for these individuals or teams to work closely together and with other departments, such as finance, logistics and customer service to ensure that supply chain risks are identified and managed effectively.

Overall, supply chain risk management is a cross-functional responsibility that requires collaboration and coordination among different departments and stakeholders within the business.

Top 10 Supply Chain Risks

1. Disruption of raw materials and components: Disruptions in the supply of raw materials and components can lead to production delays and increased costs, which can negatively impact a company’s bottom line.
2. Natural disasters: Natural disasters such as floods, earthquakes, and hurricanes can disrupt the supply chain and cause significant damage to facilities and equipment, leading to production delays and increased costs.
3. Political instability: Political instability in regions where a company sources its materials or components can lead to disruptions in the supply chain and increased risks of theft and fraud.
4. Cyber attacks: Cyber attacks on a company’s supply chain can lead to the loss of sensitive information and disruptions in production.
5. Transportation and logistics: Delays in transportation and logistics can lead to production delays and increased costs, as well as damage to products in transit.
6. Quality issues: Quality issues in materials or components can lead to production delays and increased costs, as well as damage to a company’s reputation.
7. Dependence on a single supplier: A company’s dependence on a single supplier can lead to significant disruptions in the supply chain if that supplier experiences problems.
8. Foreign exchange rate fluctuations: Fluctuations in foreign exchange rates can lead to increased costs for a company that imports materials or components.
9. Regulations and compliance: Changes in regulations and compliance requirements can lead to disruptions in the supply chain and increased costs.
10. Human error: Human error in the supply chain can lead to production delays, increased costs, and damage to a company’s reputation.

Overall supply chain risks can have a significant impact on a company’s bottom line, by causing production delays, increased costs, and damage to reputation. Companies must take steps to identify and mitigate these risks to protect their operations and maintain a competitive edge in the marketplace.

How can business leaders inform their supply chain risk management decisions?

Supply chain management forum. Supply chain risk consulting. What are the top supply chain risks? What are the key threats and opportunities in the supply chain? How do you manage supply chain risks better? Network with top supply chain risk experts. Join like minded supply chain senior managers executives and risk management practitioners. Manage supply chain risks and uncertainties better. Save money and time with BusinessRiskTV.

 

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Just-in-time delivery of materials and parts was designed to eliminate the cost of storage including the negative impact on profit. Stockpiles of parts and materials were eliminated but if there was an interruption of supply it could increase costs and even shut a business needing such supplies down. Having a lean inflexible business exposes a business to other risk costs.

What is the difference between just-in-time and just-in case supply chain?

Companies use just-in-time inventory to reduce excess supply and create a lean production process, while just-in-case inventory is used to avoid running out of stock due to a sudden increase in demand or interruption in supply. Firms operating with a just-in-time concept don’t hold significant levels of inventory. This is seen by many as a weakness now, not a strength in a rapidly changing global economy.

The concept of just-in-time supply chain is not dead, but it has had to change. For example, just-in-time supply chain may still be right supply chain risk management strategy for a business but maybe the length of the supply chain needs to be shortened and made more flexible.

 

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3 May 2022 – An RBC report has found global port congestion is worsening

One-fifth of global container fleet is stuck in various ports around the world.

Apple is reported as saying that their supplier Wistron had failed to implement proper working hour management processes, which “led to payment delays for some workers in October and November”. Wistron on Saturday admitted some workers at the plant in Karnataka’s Narasapura had not been paid properly or on time, and it was removing a top executive overseeing its India business.

Apple will continue to monitor Wistron’s progress on corrective action, but why was an earlier audit not arranged or if it was why did it not pick up on issues before significant risk event occurred?

The supplier allegedly could not cope with the rapid scaling up of manpower and breached several laws according to Karnataka state officials after an inspection of the plant following the violence and destruction. The HR department was not been adequately set up with personnel of sound knowledge of labour laws as reported by Reuters news agency. Reuters further reported other violations including underpayment of wages to contract workers and housekeeping staff, and making female staff work overtime without legal authorisation. The findings seen by Reuters and another preliminary government audit confirm the grievances over unpaid wages and poor attendance recording systems.

Apple began the assembly of its first iPhone model in India via Wistron in 2017.

Volkswagen Amazon Supply Chain Risk Management Collaboration

Volkswagen is working with Amazon to create industry wide suppliers marketplace where business customers can buy and sell industrial applications online. The B2B marketplace will contain 120 Volkswagen factories and 1500 suppliers or 30000 work plants.

The aim of the online cloud based marketplace is to exchange data and software to help accelerate the digitalisation of factory processes. Volkswagen has already opened the new online portal to the first group of supplier partners. Those suppliers are expected to contribute software applications to be shared by all. Amazon will manage the portal. The project may increase the digitalisation of automotive industry in partnership with leading tech companies and suppliers.

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