Global supply chain alignments could be the make-it-or-break-it element for the economy
By Yoni Mazor, CGO of GETIDA.com
Over the past two years, the global supply chain has been challenged and interrupted time and time again. It started with the covid-19 outbreak in early 2020, when economies worldwide shut down and people stayed at home in insulation from the virus. This greatly spiked consumer demand for shopping online, but supply chain challenges continued along with an exceptionally large container ship getting stuck in the Suez Canal in Egypt, shortages of essential raw materials, an outbreak of war in Eastern Europe, an energy crisis, and the rise of inflation.
Throughout the past years, many manufacturers and retailers have struggled to keep the right level of inventory in stock. Constant shortages and delivery snarls caused them to miss out on a lot of revenue they could have generated and would have increased their overall profits. This led many businesses to stock and pile up large amounts of inventory to hedge against the continued trend of global supply chain interruptions. The fear of not having inventory to sell to consumers was too hard to resist and took over across the business world.
However, the main challenges have been mostly settled over time with the global supply chain snarls, and people by and large have turned their attention to going outside to travel, dine and engage with real-life experiences again. They eventually spent less time at home shopping online or visiting retail stores. Spending has cooled off with the subside in demand daily quickly. This dramatic pendulum swing from not being able to keep up with consumer demand to having a decline in consumer demand caught many retailers and manufacturers unprepared. Some of them are now facing a colossal amount of inventory glut which they have to get rid of this holiday season and convert into cash.
On the other hand, some major retailers such as TJ Maxx and Burlington are extremely optimistic about being able to pile up a large stock of inventory for this holiday season. They project that for numerous product categories demand will be very strong, and having a large supply in stock will financially reward them and will give them a great profit lift. If this scenario is to be the case, and demand will be stronger than expected this holiday season, it could signal a great financial boon for the economy. Having the global supply chain function with its pre-pandemic on-time delivery system again, and properly servicing any welcomed overflow in demand this season with US consumers, it could be a great moment for the economy to finish the year strong with a bright outlook for 2023.
An even more pleasant surprise would be if the businesses that are sitting on an overload of inventory will sell them all out quicker than expected. This will cause them to place additional last-minute inventory orders and throttle the global supply chain to deliver more inventory at a real-time pace. Resulting in a wildly successful holiday sales lift this season, would be a great signal for a proper recalibration of the global economy to the rhythm it held before the pandemic hit and broke it all apart.
Nevertheless, if the global supply chain fails to calibrate properly and experiences further interruptions and unexpected failures to deliver on time, considering the scenario of consumer demand beating expectations and rising high, it will result in another frustrating season for retailers and the overall economy. The global supply chain is at a very interesting junction where it is signaling to be in good health and shape after a long period of turbulence. However, its full strength and vitality have yet to be tested under unexpected pressure in quite a while. That kind of pressure could be if consumers open up their wallets and spend in a bigger way than expected.
A very strong rally in financial and crypto markets for example might open up the spending appetite in the US at the very last minute, and might stress test the global supply chain system once again. There are a few weeks left to see what the turnout will be all across the board, it will be fascinating to follow the trends and see where all the moving parts land. What you can also do in the meantime is to make sure to open your wallet, shop wisely, look for some great bargain deals, and stay tuned.
Global Banking & Finance Review
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