CSCMP's Supply Chain Quarterly
December 18, 2017
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A recovery is coming, but don't breathe a sigh of relief just yet

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Even in a recovery, companies are likely to pressure supply chain managers to cut costs even further.

Data from the 21st Annual "State of Logistics Report" released by CSCMP earlier this month show that the U.S. economy has been through the wringer over the past year. The results also suggest that although a recovery will surely come, supply chain professionals need to be prepared for a different business climate than what they experienced after previous recessions.

That's because of something that the State of Logistics Report, which deals with freight movements and inventory, does not show: the nation is undergoing a jobless recovery. Although some have compared the current downturn to the Great Depression of the 1930s, I believe that in some ways it more closely resembles the Long Depression, which occurred between 1873 and 1879. Estimates for unemployment during that period hover around 10 percent.

According to most historians, economic output increased during the Long Depression, yet many folks remained unemployed. As the economy transitioned from agriculture to manufacturing, displaced farm workers could not find factory jobs because the increase in plant output was due in good measure to the adoption of new technology.

Right now the U.S. economy is undergoing a similar structural change. The parallels are striking: Automation, outsourcing, and offshoring are eliminating many jobs forever as the nation moves from manufacturing to an economy that focuses on services, knowledge, and creativity. There will be jobs for computer programmers, software engineers, biotechnicians, doctors, and the like. But an out-of-work construction or factory worker is unlikely to have the skills sought by employers during this period of adjustment.

The U.S. economy has largely been driven by consumption, and without an uptick in overall employment, consumers will hold back on spending. In fact, a recent Booz & Co. survey found that U.S. consumers have cut back their spending to a degree not seen since the Great Depression. That will put pressure on retailers and manufacturers to at least keep down, and more likely reduce, the prices of their wares.

Companies will increasingly turn to the supply chain for ways to keep prices in check. Supply chain chiefs can expect to find themselves in the hot seat as executive boards require them to do even more in that regard. Those who can innovate and find new ways to save supply chain dollars will be the stars when the economy comes roaring back... and it will, just as the Long Depression gave way to the good times of the Gilded Age.

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

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