From anti-inflation interest rates rising and several banks failing, the first half of 2023 was challenging, to say the least, for global supply chains. But according to PrimeRevenue, the economic outlook for the year’s second half looks marginally better.
The provider of working capital financial solution’s “Surviving Disruptions: Supplier Perspective on Economic Shifts in H1 2023” report surveyed suppliers trading on the PrimeRevenue platform in an effort to understand better their biggest challenges, demand forecast and how early payment programs affect business in light of these economic impacts.
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“Over the last three years, suppliers have encountered prolific disruption and recalibration. Now, moving into the second half of the year, there are more reasons for optimism than there were just months ago—though, for the foreseeable future, a great deal of uncertainty still remains,” PJ Bain, PrimeRevenue’s CEO, said. “Our newly released report paints a detailed picture of all the ways in which suppliers are viewing and navigating the months ahead, and the decisions they are making to remain resilient, disciplined and successful through headwinds.”
The report found that business demand is strong despite economic indicators suggesting lowered need across the supply chain, with over half of suppliers (58.4 percent) extremely or fairly confident that their customers will maintain their current purchasing volumes, with 18.4 percent reporting they’re moderately sure.
With the state of the economy, PrimeRevenue categorized suppliers’ biggest business challenges into three categories: cost-cutting, cash flow, or inventory issues or delays. Nearly 71 percent of suppliers indicated this is true, with equal numbers reporting cost-cutting (26.1 percent) and negative impacts on cash flow (26.5 percent) as their top obstacles. Approximately 18 percent of suppliers cited inventory issues and/or delays as the biggest headache they expect to face this year. But the largest percentage—29.34 percent—identified their biggest challenge as “other,” PrimeRevenue said accounts for the varied industrial and regional mix of organizations represented and nuanced factors impacting operations and performance. For example, some European supply chains continue to experience impacts from the war in Ukraine.
While some regions and industries have shown signs of supply chain disruptions letting up, few are back to pre-pandemic productivity levels. When asked to predict if those disruptions will improve, worsen or stay the same, 62.7 percent of respondents believe delays will remain the same. Just over one-quarter (25.3 percent) expected them to ease, while 12 percent anticipated conditions deteriorating. According to PrimeRevenue, the key takeaway is that these disruptions remain the “new normal” for suppliers.
“The ‘new normal’ for supply chains isn’t defined by any specific threat in particular, but rather, the broader, looming sense of uncertainty that remains pertinent throughout all the various headwinds, whether that is geopolitical conflict, the battle over inflation and interest rates, the threat of banking contagion or something else we haven’t seen yet,” Bain said, citing “discipline and resilience” as a company’s two key assets.
“Being disciplined means adopting a mindset and approach in which you do honest self-reflection and take on the difficult tasks and decisions that lay the groundwork for the future,” Bain continued. “And part of that process is practicing resilience, which is a characteristic that businesses can cultivate by taking actions such as building inventory buffers, preparing contingency plans and employing working capital solutions that free up liquidity when you need it most.”
Regarding the U.S. regional banking crisis—which brought three of the four largest bank failures this country has seen—and the Federal Reserve raising interest rates to fight surging inflation, some suppliers are skeptical about whether supply chains can bounce back. When asked how concerned they were about the banking crisis and its impact on their businesses, 43.3 percent of suppliers said they were moderately concerned. Roughly 19 percent said they were fairly concerned, approximately 19 percent identifying as fairly concerned and around 19 percent not very concerned. Just over 10 percent were extremely concerned and, on the other end of the spectrum, just over 9 percent weren’t concerned at all.
“Banking contagion is a very real threat for the foreseeable future, but the reality is that no one has a crystal ball; it’s possible that particular storm has passed, but it’s also possible there could be more challenges ahead,” Bain said. “This all underscores the importance of being prepared for, and remaining resilient, through uncertainty.”
Lastly, suppliers were also asked how using early payment programs, such as supply chain finance (SFC) programs, help their companies, with almost 59 percent citing improved cash flow as the biggest benefit. In comparison, just over 24 percent said better payment forecasting, accuracy and visibility were the biggest advantage of these programs. Just shy of 3 percent said stronger customer relationships were the best benefit, while 14.6 percent said they didn’t know or didn’t think participation benefits their company.
“For the foreseeable future, the supply chain and broader economic landscape [are] going to remain uncertain and volatile,” Bain said. “The companies that weather the storm—and come out on the other side stronger than before—will be the ones that, through the uncertainty, were proactive, forward-thinking and cultivating resilience.”
