While the timing, intensity, and predicted duration of an oncoming recession get debated endlessly by economists and news pundits, it is hard to deny the Economic storm on the horizon. A recent Financial Time’s survey found that two thirds of leading economists believe America is heading into a Recession in 2023. That outlook, combined with existing and looming inflation, a historically tight labor market, and a global supply chain strained by COVID and the war in Ukraine means almost certain financial pressure on American Businesses.
Financial pressure will squeeze 2023’s balance sheets. Without revenue growth, room on the balance sheet will be generated by cost reduction. Cost reduction in a tight labor market compels its occurrence elsewhere. Non-labor cost reduction will be the financial “topic de jour” of 2023.
The Silver Lining
Alas, the storm clouds have a silver lining. In terms of operational cost reduction, we believe the year ahead will be an unprecedented buyer’s market for virtually all things sourcing and supply chain. For every corporate Finance and procurement professional currently up at night worrying about the cost target they’ll be chasing all of next year, know this: in 2023, the chips are in your favor.
Over the last 18 months, prices and inventories have seen the largest increases in the last 25 years. As supply chains normalize, there will be opportunities to align prices to historic trendlines, particularly in industries such as technology, logistics, and healthcare. Appropriately leveraged category experts with knowledge of markets, suppliers, and benchmarks should be aggressively sourcing to capture savings and create that desperately needed space on the balance sheet.
The Birth of a Blog
Not all industries are built the same. The current economic environment has universally had an impact on all industries. Aggregate economic trends, however, have varying degrees of impact and influence across industry type. Take into consideration the following examples of the idiosyncratic buying environment our biggest industry partners currently face:
Technology: In most categories of technology expense, inflationary pressures are expected to peak in 2022 and begin easing in 2023 and beyond, initiating a distinct buying season for re-invented long-term contracts.
Healthcare: Financial pressures mount as a clinical labor crisis on the heels of dwindled procedural volume has both acute and non-acute healthcare providers and their strategic suppliers collaborating on rapid cost reduction while sustaining strained clinical resources.
Logistics: Covid-era disruption to global Supply Chain has caused hyper-inflation on transportation rates and surcharges, yet as rates and demand rapidly normalize, timing is good for market-based events focused on securing capacity at competitive prices
Manufacturing: Supply shortages persist in various sub-commodities, with overcapacity plaguing others, emphasizing the importance of executing purposeful commodity and supplier strategies to assure on-going supply for constrained markets while leveraging aggressive strategic sourcing efforts (e-auctions/ disrupters) for cost reductions.
Facilities: Inflationary prices in energy, materials and wages are being offset by reduction in demand, sourcing should therefore be timed to market corrections as commodity costs decrease.
Whether fully taking advantage of a buyer’s market (like in technology or healthcare) or navigating massively disrupted markets (like manufacturing or facilities), pragmatic tactics for savings will be won and lost at the category level, contract to contract, RFP to RFP. As a leading sourcing services firm, Impendi wants to help join the fight. We will spend the next several months releasing category specific insights and playbooks, highlighting industry fundamentals and how to take advantage of them. This Blog will be the venue to share them. Please like and share and stay tuned for the insights to come.
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