6 Ways to Guard Your Supply Chain Against Falling Consumer Demand and Revenue

85% of executives believe that higher interest rates will lower consumer demand and impact revenues, according to a recent survey by Economist Impact.

Fifty-seven per cent believe this fall will impact revenues by up to 5%, with an additional 20% of respondents forecasting a revenue drop between 6-10%.

A further 7% believe their revenue will fall by 11-15%. Only 15% of respondents believe there will be no impact on their revenue forecasts in 2023.

The International Monetary Fund (IMF) found that short-term interest rate hikes (two-year rates) had a significant impact on consumer spending, with a lag of about six months. Even though the U.S. Federal Reserve left interest rates unchanged at its June meeting, more rate hikes may be on the way, meaning more chance of a revenue hit for enterprises.

Here are six areas where supply chains should look to build resilience against revenue disruptions:

1. Improve Inventory Management

With decreased consumer demand, there is a higher likelihood of excess inventory within the supply chain. Excess inventory ties up working capital, increases storage costs and may lead to write-offs or obsolescence if demand does not recover. Supply chain leaders need to reassess their inventory management strategies, including demand forecasting, production planning and safety stock levels, to align with new patterns.

2. Adjust Production

A decline in consumer demand often necessitates production adjustments to avoid overproduction. Manufacturers may need to reduce output, leading to challenges in workforce management, equipment utilization and potential supply chain disruptions. Flexibility and agility in adjusting production levels become critical to aligning with the reduced demand and prevent bottlenecks or excess capacity.

3. Prioritize Supplier Relationships

Lower consumer demand can create a ripple effect throughout the supply chain, impacting suppliers. Suppliers may experience reduced orders, resulting in decreased revenues for their businesses. This can strain supplier relationships and potentially lead to supplier consolidation, bankruptcies, or delays in the availability of critical inputs. Maintaining strong relationships, fostering open communication and collaborating with suppliers are crucial to addressing potential disruptions and find mutually beneficial solutions.

4. Optimize Supply Chains

In response to reduced demand, supply chain leaders may need to reevaluate their network design and distribution strategies. They might consolidate distribution centers, adjust transportation routes or renegotiate contracts with logistics providers to optimize costs in line with changing demand levels. Supply chain optimization is vital to ensure cost-effectiveness and responsiveness to evolving market conditions.

5. Focus on Cash Flow Management

Reduced consumer demand directly impacts revenue generation, which can lead to cash-flow challenges for businesses. It’s crucial to closely monitor working capital requirements and explore financial strategies to maintain sufficient liquidity during periods of decreased demand. Collaboration between supply chains and finance teams and close monitoring of cash flow indicators are essential for supply chain leaders to navigate these challenges.

6. Adapt Through Innovation

Reduced consumer demand can also present opportunities for innovation and market adaptation. Companies may need to pivot their product offerings, explore new markets, or focus on different customer segments to capture demand. Supply chain leaders should proactively collaborate with marketing and product development teams to identify areas of potential growth and align supply chain strategies accordingly.

Businesses will need to adjust their supply chain strategies to adapt to any reductions in consumer demand. By closely monitoring market trends and taking proactive action to build resilience, supply chain professionals can position their organizations for long-term success.

To know more, download The Economist Impact report The Cost-Plus World of Supply Chains: The Macroeconomic and Geopolitical Environment.