Global supply chains have stubbornly resisted predictability in recent years. From infrastructure to consumer demand, widespread volatility has forced planners and businesses to be more agile in an industry that demands long term vision and strategy. Part of the challenge is the sheer number of moving parts involved, including inflation, manufacturing trends, consumer demand and inventory figures – making it easy to miss the woods for the trees.

To refocus the conversation on the big picture, we sat down with our regular economic arborist Richard Lim of Retail Economics on our podcast Freight to the Point to understand the key trends that supply chain teams need to understand in 2023 and what they can do about them.

Looking for signs

When trying to make plans for the year ahead, supply chains teams have had to deal with a decidedly mixed picture in recent months. 

Consumers and companies have seen double-digit inflation and rising interest rates, putting a squeeze on people’s personal finances and the rates at which businesses can borrow. While the country is on track to avoid a technical recession, the reality on the ground is very much one of headwinds, cost pressures and uncertain demand.

At the same time, however, there are signs of hope, as input costs and freight costs have fallen, and inflation is expected to drop from 11% to 5% by the end of 2023, which could boost consumer confidence and business flexibility. Retail sales, too, have held up better than expected, and inventory levels have reduced, although the picture is mixed across different sectors. 

In the absence of clear signposts, businesses are hedging – this can be seen in both weak order volumes and also the cautious approach to carrier contracting. With both of these factors, though, waiting too long brings its own risks. 

The demand outlook for businesses

While much attention has been given to headline figures, they only tell part of the story for businesses on the ground. ‘It’s a mixed picture across the industry.’ says Richard. ‘There are parts of the sector still suffering from a hangover impact, whether it was lockdown or people on furlough, which have disrupted the natural sales cycle.’

Some, like furniture and home retailers, had their demand cycle pulled forward during Covid, while others saw their demand drop off a cliff. These conditions have also created new consumer profiles, as buyers respond to their own circumstances.

According to Richard, there are four distinct consumer cohorts that have emerged, which are shown on this slide on the left-hand side. And so what we’ve seen is what we’ve labelled over a third of consumers as financially distressed. And so this is a group of consumers that are genuinely financially distressed and they’re looking to cut back their spending across pretty much all elements.

1. Financially distressed: Consumers who are least affluent and looking to cut back on non-essential spending.
2. Squeeze spenders: Consumers who continue to spend but are more likely to lean on debt to maintain their lifestyle.
3. Comfortably cautious: Consumers who have the financial means to continue purchasing but are cutting back on spending due to damaged confidence.
4. Financially immune: Consumers who are relatively insulated from the cost of living crisis and continue to purchase irrespective of the wider economic environment.

At all stages, however, are signs of consumers looking to maximise the value of their spend – prioritising value wherever possible, in the form of:

• Sourcing cheaper alternatives where available via alternative retailers, private label and new brands
• Delaying their purchases to maximise their spending potential 
• Changing spending habits to focus on core lifestyle elements

The main benefits will be felt on the poles of retail – tor discounters this may well be an opportunity to acquire new customers and grow market share, while luxury spending stands to retain its bulletproof status. 

Investing in agile supply chain strategies

As consumers drill down on costs and restrict spending, businesses will need to adapt their systems to control overheads, manage inventory and respond to demand quickly. Building the right approaches now will not only help companies get through the low-demand period with balance sheets intact, but also set them up to rebound faster once restocking comes around with targeted orders, supplier management and modal strategy.

Meanwhile, in a reduced-demand scenario, every customer becomes more valuable, with the need to retain business in the face of cost-cutting competitors and limited spending power, offering the right service and consistent availability will be even more key.

Firms working with legacy systems can struggle to source the right information, services and insight to understand this fast moving market. This creates an opportunity for companies to invest in up to date supply chain mangement systems and partnerships to gain competetive advantage when it matters most. This must include:

• Purchase order management: Managing inventory and costs starts with reliable data across orders, production and transport within your supply chain, tracking SKU data from input to delivery.
• Insights and analysis: Tracking costs and performance at scales enables businesses to understand supplier and team performance at a granular level to improve planning and execution and prioritise the best partners.
• Exception management: With prices and sailing schedules still volatile, the ability to respond to changes in the market can have a major impact on landed costs and service windows. Ensure that your systems and partners can not only surface exceptions, but adapt your plans to deal with them effectively.

Zencargo’s supply chain platform helps the world’s fastest-growing businesses plan and thrive in an ever more dynamic market. Our digital freight forwarding team ensure you always have the data, insight and advice you and your team need to plan for and respond to the needs of your customers. 

To find out more about how you can thrive in today’s changing economy, get in touch with our team today.