Supply chain resilience faces a hurdle as high interest rates push companies towards capital stock investments over inventory and diversification.
Resilience Investment Under Question
Chris Rogers, Head of Supply Chain Research at S&P Global Market Intelligence, questions whether organizations are truly committed to enhancing supply chain resilience despite its critical importance.
Profit Margins Squeeze
Rogers highlights a concerning trend where global manufacturers’ gross operating profit margins are projected to decline from 10.7% in 2022 to 10.4% in 2024, primarily affecting the computing, electronics, and domestic appliance manufacturing sectors.
Interest Rates Dampen Inventory Approach
With high-interest rates prevailing, Rogers notes that the strategy of maintaining high inventory levels, often used during the pandemic to mitigate disruptions, may lose its appeal. He points out that each dollar sitting in the warehouse is a missed opportunity for debt reduction, dividend payouts, or investment in growth.
Supplier Diversification Retreat
Rogers observes a regression in supplier diversification efforts, attributing it to a fluctuating trend. While supplier diversification helped mitigate pandemic-related disruptions from 2019 to 2021, it began reversing in 2022, leading to fewer suppliers in 2023. He anticipates reduced diversification in 2024, with companies consolidating orders with fewer suppliers to secure better prices.
Alternative Approaches to Resilience
Facing budget constraints, companies may seek alternative solutions for supply chain resilience. Rogers suggests leveraging technology and organizational strategies as lower-cost alternatives. Artificial intelligence (AI) can offer predictive insights into future disruptions, shorten recovery times, and optimize distribution routes based on historical and real-time data.
About the CSCMP
The CSCMP stands as the global professional association dedicated to supply chain management research and knowledge. With over 9,000 members worldwide spanning industry sectors, government, and academia, CSCMP leads the charge in advancing supply chain expertise.
