Supply Chain Matters continues with our prior published blog of Supply Chain Meets the Board Room- Getting the Sense of the Broader Business Picture, with some updated economic and survey data. Many of our readers are more than likely actually feeling and responding to the impacts of this data, but this commentary is one of helping to provide context.

 

Revised Global Economic Outlooks

Earlier this month, both the World Bank and the Organization for Economic Cooperation and Development (OECD), published revised global economic outlooks.

Before this year began, both the World Bank and the International Monetary Fund (IMF) World Economic Outlook had forecasted global growth to be in the 3 percent growth range.

The World Bank’s latest forecast expects the global economy to contract by 5.2 percent in 2020 as a result of the ongoing COVID-19 coronavirus pandemic. The Bank’s commentary notes that such a contraction represents one of the four most severe downturns in 150 years. The bank’s semiannual forecast call for a forecasted 4.2 percent rebound in the year 2021, described as a modest recovery. At the country level. The World Bank forecasts the U.S. economy to contract at 6.1 percent, followed by a 4 percent growth rebound in the year 2021. The Eurozone countries forecasts now indicates a contraction of 9.1 percent this year, followed by 4.5 percent growth in 2021. The forecast for China calls for a mere one percent growth this year followed by a 6.9 percent rebound in year 2021.

The latest forecast from the OECD calls for global growth to contract 6 percent this year, followed by 5.2 percent growth next year.  Commenting on this forecast The Wall Street Journal characterized the number as: “one of the gloomiest forecasts for growth yet published by an international financial institution. Additionally, the organization made the unprecedented step of offering two forecast scenarios, with the separate scenario being predicated on a second significant wave of the pandemic occurring later this year. In that scenario, global growth would contract by 7.6 percent this year, and would only grow by 2.8 percent in 2021.

Meanwhile, the National Bureau of Economic Research declared early this month that the U.S. economy officially entered an economic recession in February of this year, capping a 128-month economic expansion, the longest in records dated back to 1854. The Eurozone economy is also in a state of recession.

The probable duration of such recession remains that of the viewpoints of economists and of the continued stimulus plans being acted by legislative bodies. While many hope for a termed “V” shaped recovery, it is increasingly looking like something different, and most is dependent on the timing and availability of effective vaccines that can control or eradicate ongoing virus outbreak.

For multi-industry supply chain management teams, continuing waves of product demand and/or supply disruptions, brought about by either continued virus infection, or the effect of unemployment and lost income continue to manifest and test sales and operations planning and senior executive teams in mitigating the effects.

 

Changing CFO Perspectives

When the virus first manifested its impacts in January and February, global CFO’s were already of the view of added uncertainty and uneasiness as to where the global economy was headed. As noted in our Ferrari Consulting and Research Group 2020 Predictions for Industry and Global Supply Chains, published at the start of this year, many CFO’s were of the view that recession would occur either late this year or sometime in the year 2021.

The CNBC Global CFO Council survey, reportedly representing the largest public and private companies,  taken last month, pointed to the majority of CFO’s now of the view that this coronavirus pandemic will have a “negative” or “very negative” impact on respective businesses. The reported percentages are nearly 49 percent to the former and 39 percent to the latter views. The same survey taken in March reflected 30 percent indicating that it was too early to assess the impact. This data implies that CFO’s are likely more inclined to preserving overall liquidity and cash resources as the overwhelming objective right now, in addition to maintain revenues and reducing costs.

 

Command Center Mentality

Again, like many procurement and supply chain management teams are aware, as the waves of disruption continue, so do the cascading product demand and supply effects. For procurement leaders, there are growing concerns relative to the financial state of key suppliers. A recent survey sponsored by Riskmethods reflecting on leading indicators of supplier financial distress is reported as 2.75 times higher than at the beginning of the pandemic. A Procurious survey of over 600 supply chain and procurement professionals suggests that seismic changes in supply chain strategies are yet to unfold including either major shifts in supply, decreased dependence on global based suppliers or planned increases in overall inventory levels. The question is timing and coordinated response.

As noted in our prior commentaries, the need for cohesion of business operational, tactical and strategic and supply chain strategies is of upmost concern as are the notions of a supply chain command center focus.

Gone are historic forecasts and playbooks in inventory and distribution policy, at least for now. Historic charts of sales in inventory ratio have hollow meaning when inventory is needed to preserve customers and revenue flow. Within essential business and product categories, inventory remains a lifeline toward mitigating added virus spread.

The notion right now is business continuity and all that is required to ensure that liquidity and supply chain capability remains functioning.  Information is likely changing daily or hourly, and the need is for context and the most-timely status of demand, available supply and production capability.

The economic data currently points to some recovery occurring next year. Supply chain leaders should likely be informing and positioning senior management as to what is required and being done to ensure that the business navigates a highly uncertain and obvious turbulent period, while many will likely to continue to work remotely.

This has never been more of a more opportune time for supply chain management teams to continue to foster innovation, clear thinking and level headiness. A very challenging period will hopefully lead to states of business stability and then recovery. The question is one of everyone being on the same operational playbooks and utilizing the most timely and important information.

 

 

Bob Ferrari

© Copyright 2020, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.