Oil production in the sea.

Just as we recover from two years of operating in a pandemic, recession raises its head once again. Aidan Magner looks at what’s coming and how to future proof your business.

A quick Google of recession 2022 will lead you to a results page full of articles and experts warning about a difficult second half of the year.

All the indicators are pointing to a recession in the third and fourth quarter of 2022 lasting well into 2023. This comes just as we are finally exiting the pandemic and is caused in no small part by the war in Ukraine.

What makes this recession a bit different is that following the pandemic consumer demand is currently very high. If you’ve tried to buy a new car, a smart device or travel through a European airport you’ll have seen this first-hand.

That demand though is met on the flip side by business costs rocketing out of control. Oil and gas prices are placing pressures on every aspect of life and commodity shortages are driving the cost of products up.

A particular pressure point lies in the steel industry. As a result of the war in Ukraine, steel is in short supply and so the cost of steel and derivative products is constrained and more expensive.

Interestingly, a by-product of steel manufacturing is neon gas. 50% of the world’s supply of neon gas comes from the steel industry of Ukraine and it is a necessary requirement for producing semiconductors. Therefore a 50% reduction of neon gas will have a direct effect on the volume, availability and price of smart consumer goods.

These are all external risks, factors that your business needs to react to. At the consumer end of the market, we have low stocks, leading to longer waiting times and spiralling costs but at what point do we see the demand vanishing? Does there come a point where consumers decide that as the cost-of-living increases its best to ‘do without’ for the time being?

Do you use delivery delays as a reason or justification to cancel your orders, or postpone to 2023 or 2024? As consumer confidence falls, so too will the demand curve, addressing the supply/demand imbalance. But the downside of this is that someone ends up ‘owning’ the excess inventory that is in the system resulting in financial implications.

Second to those external risk factors are the internal ones that your business faces. While you may want to support your team through the cost-of-living crisis and give pay rises, this increases your internal costs, and you may need to increase the prices you charge your customers.

As a result of this you enter an imploding spiral. You increase your costs giving customers a reason to cancel, these cancellations further increase your costs which you pass through to your remaining clients who cancel their orders.

So what are the steps you can take to recession proof your business? At 3SIXTY we have a number of immediate actions to consider.

  1.  Risk assessment: Repeat the business impact assessment/risk management planning events. Risk constantly changes and you need to revisit the last risk analysis. View all the scenarios that could happen.
  2. People and Skills assessment: Review the strength of the team. In the event of a brain drain, do you have the ability to maintain business if some key staff were lost? Have you identified the talent that is core to your business, and have you thought about the possibility of having to right size the team?
  3.  Doing more with the same resources: Have you completed a review of your processes and ensured that you have eliminated all waste in them. Now is the time to perform a deep review and make your processes are the most efficient they can be.
  4. Supply Chain Relationship Management: Supplier partnerships are the bedrock of all industries and sectors. It is not too late to map your supply chain partners and not too late to build relationships so you can navigate the next 12 months in unison.
  5.  Communicate, communicate, communicate: There is no level of communication that is excessive in these times. Communication with customers, communication with suppliers and on occasions three-way communication with both customers and suppliers. 80% of your spend is with 20% of your suppliers, 80% of your sales are with 20% of your customers, 80% of your profits come from 20% of products/services. There is no level of communication that is excessive.

At 3SIXTY we have the team and knowledge to deliver on your needs. Call us today.

Published On: May 12th, 2022 / Categories: Insights /
Brian O’Brien

Partner & Head of
Coffee Conversations

Do you want to improve business performance?