With many economists projecting a recession in the near future, many logistics companies are starting to tighten their belts to figure out how to cut costs in 2023.
In 2022, manufacturers were faced with numerous financial problems due to production disruptions and China’s COVID-19 resurgence. As 2023 starts, companies have started to plan their budgets and control costs. Resiliency is leading the way and has become a priority to avoid any global shifts.
At this time, the U.S. is experiencing a volatile economy with a lot of geopolitical uncertainties due to the war in Ukraine and other events. Manufacturers are struggling to mitigate supply chain costs.
The inflated cost of materials and laborers is impacting manufacturing. Maintaining a quality workforce has become a challenge. The rising costs are also impacted by the cost of raw materials, transportation, and logistics. Companies are clearly trying to get costs in order and gain operational efficiency.
Steve Young, a partner in Bain & Company’s advanced manufacturing and services practice stated, “Over the last several years, manufacturers and operations leaders have been under a lot of pressure to get output, and that output is at almost any cost, just to meet demand. Places where in the past there were really tight controls on indirect spends, whether that be maintenance, engineering costs, [etc.], we’re finding clients increasingly focused on getting control back on all those kinds of spends.”
Companies are working to forecast their demands so they can better drive efficiency. Operational and commercial teams are focusing on understanding what the year will bring with demand and how to plan production and inventory.
Young goes on to say, “It’s really important for the operations and the commercial teams and the strategy teams to work really closely together to get control of the underlying demand forecasts. We’ve gotten through periods where the demand trends in many industries have not been normal in a way that they have been in any recent history. Going back to the very basics of understanding the markets, the customers, the competition, and where demand truly is going becomes really important.”
Teams need to maintain close communication with suppliers and then bid to effectively control costs while better understanding vulnerabilities.
“How do you think about two-way supplier communications? How do you think about supplier risk assessments? How do you think about putting strategies in place that create redundancies and resiliency in that supply base and can see risks out ahead and can address them before they become problems?” Young states.
Reshoring is becoming a common world as manufacturers strive to safeguard their supply chains from disruptions. Many are moving closer to its home base, especially after the upheaval in Chin and the COVID-19 disruptions.
Cory Wendt, a principal at Baker Tilly focuses on manufacturing and distribution advisory states, “COVID challenged us to say how do we make our money, and is it all about low cost? Because if you’re not on the shelf, all of that cost is lost quite quickly.”
Reshoring might cost more but it provides greater security and far less risk. Auto and technology manufacturers can also take advantage of tax credits via the Inflation Reduction Act.