Is your supply chain ready for the next recession?

This is an excerpt of the original article. It was written for the May-June 2020 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2020

Most of the time, when I sit down to write this column I look at what I wrote for the previous year’s issue for perspective or inspiration. The truth is, nothing I’ve written before, or experienced in my 64 years, has prepared me for COVID-19. I’m sure that most, if not all, of you can say the same. Yes, it’s a global crisis, but closer to home, it’s a supply chain crisis. Quite simply, even the best supply chains, at least those that are still operating, are broken.

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Editor’s note: This is the first part of a two-part series on the recession and supply chains.

The crash of 2008 is just a memory. The layoffs, bankruptcies, foreclosures and bailouts of 2008 through 2013 have faded away. Good times are rolling again. Employment is near a record high, businesses are expanding and the stock market is at record highs. What’s not to like?

Given all of the economic exuberance, we might sound a little like a voice crying in the wilderness, but someone needs to ask the question: How long will it last?

Consider this: A senior manager in his or her 60s has seen stock market crashes in 1962, 1974, 1981, 1987, 2002, and 2008. Before the crash of 2008, the average drop in the stock market for these crashes was 29% (range of 22% to 35%) and the average time to recover their value was 18 months (range 14 months to 23 months).

Stock markets signal the beginning of a recession but not the end. The employment rate begins falling and keeps falling for a year or more after the markets are already recovering nicely. The employment rate is a better signal for the end of a downturn and it usually takes twice as long as the stock market to recover.

The crash of 2008 and the recession that followed were much worse than normal for this era. The Dow Jones Industrial Average fell 53% from 14,093 to 6,600 and did not regain its former value for 5 1/3 years. The unemployment rate rose from 4.4% to a peak of 10% one year after the market crash.

It took employment another nine years to return to pre-crash levels. During the recession 7.9 million people in the United States lost their jobs, 6 million homes went into foreclosure and 4 million businesses closed. We have now enjoyed 10 years of recovery from this latest crash and recession.

The U.S. stock market has shot past its pre-crash level of 14,093 and soared to a range of 25,000 to 27,000. The unemployment rate has shrunk to below 4% as of the most recent jobs report. But the statistic hangs over us: 9 years between crashes is the recent average.

Maybe it’s time to see how prepared we are for the next crash. Did we learn anything? Are supply chains better prepared now than in 2007?

SC
MR