Recession? What Recession?

By Wade McDaniel | July 01, 2022 | 0 Comments

Supply ChainBeyond Supply ChainSupply Chain Strategy, Leadership and Governance

In a recent pulse survey of the Gartner chief supply chain officer (CSCO) community, we heard from dozens of companies across industries about their main areas of focus in the short and long term. Perhaps because I’m a glass half empty kinda guy, I expected to see the risk of a recession right at the top of the list. But recession is nowhere close to either the near or long-term focus.

In April, we asked the same community what they thought about the chance of a U.S. recession — 100% said one would take place between the second half of 2022 and the end of 2023. This was up from 75% when we asked the same question in February. The sentiment for Europe was even more gloomy and near term.

The CEOs of JPMorgan Chase & Co., Morgan Stanley and Wells Fargo all have varying opinions on the possibility and the severity of a U.S. recession. The CFOs of GM and Ford are building economic turn-down scenarios, and on June 17 the Conference Board released its survey of 750 C-suite executives, in which 60% expected a recession within the next 12 to 18 months. Recession is clearly top of mind in the C-suite.

Does the lack of attention on the part of the CSCO community mean they have lost their way when it comes to a potential recession? Or are they simply resigned to one taking place? I think it may be a bit of both.

We asked about their overall level of optimism two weeks ago, on a scale of  1-10, with 10 being very optimistic and one being very pessimistic. Unsurprisingly, the average was a muted six. This might be due to the fact that the primary near-term focus is on constrained supply.

Peeling this back a bit further, we see the tension in balancing the tactical of the near-term vs. the longer-term strategy and transformation needs. Leaders are struggling to find a Goldilocks condition. Not too much, not too little. Just right…

The risk is being continually stuck on one side of the balance, which is very tactical at the moment. Shortages are a real everyday occurrence; a recession lacks specifics and comes without fixed points by which to navigate. Perhaps it’s easier to latch onto the tactical, which needs action now, and put less defined things off for later. While this approach will net positive results, it also injects risks. Leaders must not lose their bearings, but stay on course with a well-defined strategy.

In the mid to long-term, CSCOs have their sights set on strategy development, digital roadmaps and a dash of demand volatility thrown in. Demand overall seems fairly steady, or more to the point it’s very high and supply can’t match it. There is a consumer shift under way which we have all read about recently, and high-tech is talking about excess inventory by the end of 2022. Demand volatility for either inflationary or recessionary (or possibly both) reasons is on the horizon, according to supply chain leaders.

Even faced with ambiguity, these leaders understand that revising or adapting their strategy is a priority to be dealt with in the coming 18 months. One high-tech leader is focused on developing better leading indicators, independent of knowing the exact timing. The sense is that the next downshift in demand will be sudden and high magnitude.

Could a recession be viewed as just one more event in a series of unfortunate events? There certainly is a case to be made for this outlook, but we need to strive for a solid balance. Much like riding a seesaw as a child, the better the balance, the less dangerous and more fun it can be.

Wade McDaniel
VP Distinguished Advisor
Gartner Supply Chain
Wade.Mcdaniel@gartner.com

 

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