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How the global recession, cost of energy, increased inflation, increased interest rates will affect the IT supply chain (Part 2)

In our first article we took a look at how we arrived at the current situation, where supply chains are under extreme pressure. In Part 2 we’ll take a look at how IT organisations can build resilience into their supply chains to prepare for tough times ahead.

There is an argument to be made that the ancient Chinese curse “May you live in interesting times” seems to have come true. Consumer prices have soared, and the consequences have rippled all the way back down to raw materials. Now businesses and individuals are facing tough conditions and choices. 

Will higher interest rates help the supply chain? 

Raising interest rates is intended to cool overall demand and bring the economy to a more stable point. The Fed raises the interest rate on the money it loans to banks, which means banks raise the rates on everything from mortgages to car and business loans. 

For consumers, they hopefully start spending less on goods and reduce their debt. 

From the business side, this means that organisations will be less inclined to launch new projects or invest in a larger scale on existing ones. In theory, this should lead to a reduction in demand and help the supply chain get back on track. Of course, it’s not ideal if you were planning to enter an aggressive growth phase. 

Supply chains need resiliency

The word that has increasingly become connected with supply chains is resiliency. Even before the recent Russian invasion of Ukraine and the Chinese lockdowns, experts were predicting that things would only start improving in the second half of 2022. Now we’re likely to see even further delays. 

A global recession is on the horizon due to the factors we discussed in the first article on this topic. IT supply chains will have to build resilience into their very structure to weather this storm. 

Managing a supply chain during the recession

With supply chains already stretched beyond capacity, even the smallest change in demand can lead to outsize impact. As every link in the chain responds to current circumstances they also adjust forecasts, plans and new orders. Where previously the expectation was for a large supply, they are now potentially left with dead inventories and high costs. 

The last few years have been particularly eventful, but it’s not the first time we’ve been here. Here are four core tactics that can help build resilience into your supply chain. 

Invest in relationships with essential partners

Your starting point is to identify who are the partners you need for your business to survive. Ideally, you want to have several to create some measure of redundancy in your chain, but this may not always be possible. It is critical that you establish and strengthen relationships with suppliers who are able to cover the largest section of your required inventory.

Reduce product range

You can lower costs and increase order size by having a limited amount of product varieties. This also can help you focus on top-sellers and reduce inventory levels. It can seem a value-add to provide the client with a large range of options, but this also introduces risk on the supply and maintenance side. 

Economical transport routes and flexible locations

It takes better planning, but it can help to look to more economical and slower transport routes and methods. This may not always be feasible according to business needs, but it can make a difference in overall project and equipment costs. This can also be part of a strategy to have multiple locations for your inventory. If you rely only on a single transport route, this can be impacted by environmental or political factors. You can reduce shipping costs and increase fulfilment rates by optimising your inventory locations. 

Nearshoring the supply chain

Recent events have exposed the vulnerabilities that international supply chains face. Seeking lower prices has led many companies to source many components or even fully manufacture items offshore. China has become a central manufacturing hub for much of the West, but the political relationship is becoming strained, putting this at risk. We can expect to see many countries and businesses begin to reduce geographical dependence in their supply chains. While keeping supply chains local can increase costs, it does result in tighter control and better reliability. 

Are you getting the equipment you need?

What can you do when you need to ensure you’re getting the IT equipment you need to grow? When you’re looking for an IT asset partner, you may want to quiz them on the previous aspects of their supply chain. 

At Relltek, we’ve been working hard to build resiliency into our supply chain to ensure we can meet the needs of our clients. If you need equipment, we’re confident that we can help. Get in touch at info@relltek.com or call us on +44 (0) 203 0922 787 for a chat.

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