Economists have been sounding the recession alarm for several months. Inflation has reached a 40-year high, and the Federal Reserve’s move to combat this rise with a whopping .75 percentage point interest rate hike has consumers worried.
According to the National Bureau of Economic Research, a recession is defined as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Bloomberg’s monthly survey of economists boosted the probability of a recession within the next 12 months to 47.5%, up from 30% in June. Meanwhile, some consumers and strategists are claiming that the recession is already here.
Either way, it’s important to note that consumer spending habits change during such economic downturns. When consumers have less disposable income, they tend to prioritize essential spending. They delay luxury purchases or those they see as unnecessary in favor of items such as food, basic clothing and objects that enhance their comfort at home. In addition, consumers are on the lookout for good deals and money-saving opportunities during a recession. In short, they reduce spending to save money. This was seen on the heels of the Great Recession of 2008 when the average annual expenditures per consumer dropped 2.8% in 2009.
Due to these changes in spending, small businesses are often the hardest hit during difficult financial times. In fact, during the two years following December 2008, 1.8 million small businesses were forced to close their doors.
E-Commerce Sellers Have Cause to Remain Hopeful
That being said, e-commerce sellers have reason to remain optimistic. e-commerce sales actually increased during the Great Recession of 2008 and continued to do so throughout the COVID-19 pandemic. In 2021, e-commerce sales accounted for nearly 20% of global retail sales, and that number is only expected to rise.
More and more consumers prefer to make their purchases from the comfort of their couch. Therefore, if e-commerce sellers properly prepare for what seems to be an inevitable recession, they will be able to survive and even thrive.
While there are many ways that e-commerce sellers can strengthen their businesses and continue to appeal to customers during a recession, supply chain optimization is an integral part of any business plan. Businesses that are striving to survive the upcoming recession would do well to take a closer look at their supply chains.
Supply Chain Optimization Has Big Benefits for Businesses
Supply chain optimization refers to the improvement and streamlining of every process in the supply chain, from sourcing to manufacture, inventory and delivery. By optimizing their supply chain, businesses can trim excess costs, increase efficiency, and shorten shipping lead times. They will then be able to offer better, cheaper and faster service to customers. A positive buying experience also leads to greater customer loyalty, which is vital during an economic downturn as it can be challenging to attract new customers.
Perhaps the most significant benefit of supply chain optimization ahead of a recession is the opportunity to cut costs. By accurately mapping and analyzing the supply chain, e-commerce sellers can identify areas of weakness. Are they getting the best possible price from suppliers? Are operational costs too high? A lean and efficient supply chain is key to lowering costs across the board while maintaining profits. This is particularly true in the current climate of inflation, with fuel and shipping costs continuing to rise.
During a recession, as sales are likely to drop even as costs increase, saving wherever possible can make all the difference in a business’ outlook. Additionally, the past several years have been fraught with supply chain disruptions, due in a large part to the COVID-19 pandemic as well as a global conflict. By optimizing for a flexible and resilient supply chain, e-commerce sellers can prepare their businesses for unavoidable disruptions to production, which are now expected to occur every 3.7 years.
Optimize for Efficiency, Flexibility and Resilience While Cutting Costs
Supply chain optimization begins with planning. A good place to start is building a comprehensive map of the entire supply chain. This allows businesses to visualize its interconnected parts, providing insights that may be difficult to see otherwise. For many e-commerce sellers, supply chain mapping software or an online mapping program can make this task easier.
Then, e-commerce sellers should take a closer look at each stage and make changes that prioritize efficiency, cost saving, reliability and flexibility. Automating order processing and data entry, for example, can free up valuable time and resources while improving accuracy.
When it comes to choosing partners, it’s wise to do some research to ensure the best deal possible while emphasizing transparency and flexibility. This is invaluable during times of frequent supply chain disruption. Sellers shouldn’t be afraid to negotiate for a better deal and they should make sure that communication is open and honest. This is true of suppliers, 3PLs (third-party logistics providers) and any other partners brought in to help manage the supply chain.
Staying on top of supply and demand is another essential aspect of supply chain optimization. Maintaining the ideal amount of inventory to fill the demand and avoid stockouts is challenging but crucial to the health of an e-commerce business. To do this successfully, sellers should make sure to collect data and analyze patterns and trends, using this information to forecast future demand. There are several options available for data analysis and demand forecasting, many of which utilize artificial intelligence for more accurate projections. This information helps sellers plan ahead and maximize profits.
Of course, a healthy cash flow is vital to support a well-functioning supply chain and promote business during a recession. Keeping close tabs on unit economics is invaluable, and it’s important to always have funds available for unexpected expenses. During a recession, having a funding plan can help save businesses from failure.
Despite the bleak economic forecast, e-commerce sellers have no reason to despair. On the contrary, if they plan ahead and optimize their supply chain, they are likely to not only survive the recession but also set themselves up for growth once the economy begins to recover.
(Roei Yellin is the Co-Founder & CRO of 8fig.)
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