Procurement & finance teams and anyone with a 401k witnessed the extreme volatility of the stock market during the week of August 12th. The financial markets are predicting a near term recession. The US-China Trade War is causing a global slowdown. It is hitting Asia and Europe first. The US economy seems very strong right now, but industrial companies dependent on export and global trade are suffering.
In addition to the new normal of constant news regarding global trade, we saw new signs of the impending recession:
- The Yield Curve Inverted: The bond market is predicting a recession. Generally, bonds carry higher interest rates for longer term maturities. Last week, the yield (or interest rate) on near term bonds was actually HIGHER than long-term bonds, indicating that the bond market is predicting a recession. In other words, there is more risk in the economy in the near term than in the long-term.
- The German Economy Shrank: Germany’s gross domestic product shrank 0.1% in the three months to June. This was due largely to Germany’s reliance on exports and the uncertainty caused by the U.S.-China trade war. The prospect of a no-deal Brexit in the UK is not helping.
- Unemployment Rises in China: Unemployment in China is at its highest level ever and economic data in China on factory production, consumption, and property investment is MUCH lower than expected.
Can procurement and supply chain professionals help their companies prepare for the impending slowdown and recession? Absolutely!
Inevitably in the budgeting process, companies need to do a Zero-Based Budgeting approach to understand the true cost drivers behind a cost center or BU. Spend analytics (and AI in procurement) can help uncover potential areas for savings. In the Suplari recession survey, we already see procurement teams analyzing travel & entertainment, renegotiating supplier contracts, consolidating suppliers and delaying key projects in an effort to save money.
Yet, 77% of companies are not prepared for a recession.
No one wants to do a lay-off. Enterprises should start planning for a global slowdown in the 2020 budgeting process by constricting spend now. It is easier to fund new projects in the future, versus make cuts and reforecast. Of course, teams need to rapidly understand their spend and their suppliers in order to create an accurate budget and find hidden cost savings.
Suplari’s ability to leverage AI to finance and procurement data can greatly accelerate this process. Suplari proactively finds insights from financial data in multiple enterprise systems like the ERP, the Procure to Pay, and contract management system. Suplari makes teams dramatically more productive by delivering insight alerts instead of pulling data and creating reports. Suplari customers have reported 60% increases in team productivity in addition to optimizing spend, risk, suppliers, and compliance.
To learn more about how Suplari can help your organization plan for a recession, contact us for a demo.