Gartner: Four ways chief supply chain officers can respond to inflation

Over the next few months, chief supply chain officers (CSCOs) must focus on four priorities to prepare their leadership response to high inflation and recession risk, according to Gartner, Inc.

The research and advisory firm revealed in a new report that more than 40 per cent of companies increase inventory to mitigate ongoing scarcity and inflation.

“While CSCOs primarily focus on developing strategy and enabling organisational capabilities, the economic headwinds they experience these days call for a steadying influence amid reactive stakeholder tendencies, such as defunding strategic investments and slashing overhead costs,” said Paul Lord, senior director analyst with the Gartner Supply Chain practice.

In case you missed it: How Supply Chain Planners Can Respond to Inflation and Recession Risk

Here are four ways Gartner said CSCOs can be on top of rising inflation rates rise and a looming recession.

Position Flawless Execution as Supply Chain’s Primary Mission

Most supply chain organisations have already developed plans for improving efficiency to offset a normal inflation rate. Gartner recommended that CSCOs should encourage their teams to implement these plans while remaining focused on their critical role in fulfilling demand to capture margin.

“Uncertain times require steady leadership from the CSCO, particularly to operating functions that are critical for ensuring product availability and service delivery, such as logistics and customer service,” Lord said.

Let the Planning Team Rise to the Challenge

Gartner said an economically difficult situation is a good opportunity for leaders to evaluate and develop their planning teams’ capabilities and processes. For example, higher interest rates and material prices should prompt reductions in production batch sizes, where possible, to rebalance capacity and working capital economics.

Gartner said businesses are responding to high inflation with actions to manage margin and cash within sales and operations planning (S&OP).

The research firm’s survey from May and June 2022 among 130 business executives revealed that 57 per cent of manufacturing and retail companies have been able to maintain margins with pricing actions, with little or no changes to their spending plans.

Meanwhile, service-centric business models such as healthcare and information services are having more difficulty raising prices to maintain margins. Findings showed that 17 per cent have been forced to extend longer payment terms to their customers.

Manage Cost Reduction Carefully

One way to reduce costs and further improve efficiency is role consolidation, said Gartner.

For instance, CSCOs can consolidate functions such as site quality, safety, environmental compliance maintenance and continuous improvement into fewer teams with improved focus and alignment.

“It’s important to focus on maximising the ability of the supply chain to control inventory and optimise the cost of product supply,” Lord said.

“The anxiety and fear created by unfocused overhead scrutiny during these times creates the risk of distraction from the primary mission of operating effectively to fulfill demand and serve customers,” he said.

Protect Investment Spending

Gartner highlighted how the last economic downturn pushed growth leaders to reintroduce capital expenditure after a recession much faster than their peers.

That’s why CSCOs should be protective about their planned technology investments to not fall behind their competitors.

According to the Gartner survey, manufacturers and retailers are most protective of spending on product innovation, talent development and technology investment for price analytics and operations automation. For service-centric companies, they are protective of technology investments such as back-office automation and operational visibility for increased efficiency.