The supply chain is a land of opportunity in a recession

As depressing data pours in from across the globe, it would take a brave entrepreneur to place a large bet against there being a recession.

Some argue it has already begun. At the very least, preparing for one is good risk management. But given that most companies have already battled through the pandemic years and facing logistical problems from broken supply chains across the globe, it might seem hard to view suppliers as a land of opportunity. But coming through a recession requires a positive mindset, and this is never more true than within supply chains, where the right approach can bring tremendous cost savings and growth opportunities.

The first benefit is that this is the ideal time to focus on reviewing your suppliers, something there is not always the time for. So much has changed in business within the last couple of years. Those industries that rely heavily on components from overseas may have become unreliable, and container costs have skyrocketed. On-shoring may, for the first time, be an economic as well as ethical option. In addition, some larger suppliers who have previously been unworried by the idea of you taking business elsewhere may now be much more open to negotiation. Everyone is more aware of the need to keep all their customers happy, even smaller ones. They may now be approachable to discuss giving you better prices and longer credit terms.

It should also not be all about costs. Now is a time to weed out the unhelpful or unreliable, the ones who do not view working with you as a partnership. It is the time to build relationships and ensure you maximize those relationships with suppliers. True partners will not just talk to you about your account but share their insights of the markets to keep you updated. And while you might be tempted to economize on service suppliers, they too can save you money when working in for mutual benefit. For example, good tech partners can work with you to automate and cut costs. It is the perfect time to become more efficient. First-rate automation within your financial reporting can alert you to spending and consumer changes faster than you would likely see yourself.

You can certainly use a recession to review and emerge sleeker, more efficient, and with far better suppliers. But they can also be an excellent opportunity for growth via acquisition. While in times of blue skies and plain sailing, you might have considered a horizontal acquisition, a recession might be the time to consider growth via vertical integration.

Suppose, for example, that you are spending a substantial amount on your social media; it might be worth considering either buying or even setting up a social media company of your own. Vertical integration is about looking for services or components you buy in quantity on a regular basis and exploring if there is a viable option for you to run a secondary company that services both your needs and other customers of its own. The benefits are multiple.

You acquire a secondary company with a substantial client from day one (your original company). You have much more control over that element of your supply chain. You can take an active interest in everything that goes on, be more aware of potential hazards, have greater control over quality, and possibly have very advantageous prices.   Particularly if you choose a service area, your setup costs will be comparatively small, and you might even be able to tempt the same person or people currently working on your account to join you. In addition, there are other gains to be had. Firstly, you will have an asset on the balance sheet instead of a regular hefty debt. There may also be tax advantages. When done right, vertical integration can result in both cost-saving and a leap in company value. Win: win.

Supply chains shouldn’t be viewed with doom and gloom in times of looming recession.  Instead, consider them as a golden land of opportunity.

Jan Cavelle
Jan Cavelle

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