How to Optimize Your Spend Amid a Looming Recession
- Inflation has prompted central banks to raise interest rates, increasing the risks of a global recession.
- IMF expects lower GDP growth due to macroeconomic factors.
- Rising input costs and recession risk spend make innovation with suppliers and sustainability more important in controlling category spend.
December 30, 2022 | Procurement Strategy
As 2022 draws to a close, procurement leaders have some serious clouds covering their view of the road ahead for 2023. The biggest one, perhaps, is inflation.
The International Monetary Fund expects global inflation to be 8.8% for 2022 and 6.5% in 2023 as supply chain constraints continue to ease and interest rate hikes by central banks worldwide take hold.
With rates likely to stay high next year, the risk of a recession will also be significant, as increased energy costs, the continuing Russia-Ukraine war and trade wars create an environment of greater volatility and tighter credit.
What are the Chances of a Recession?
The IMF anticipates lower global growth in 2023 driven by inflation pressures, geopolitical issues and a slowdown in China. The United States, China, and the euro area are likely to stall and for many people, 2023 may feel like a recession regardless of whether the technical conditions for one are met.
There could be more interest rate hikes, as central banks seek to aggressively bring inflation back to historical levels.
Moreover, businesses that have invested capital to address supply chain disruptions and are now seeing increases in capital cost may pass on the impact of those costs to their end consumers.
What Should Procurement Leaders Do to Prepare?
To combat the effects of high inflation and recession fears, chief procurement officers, category managers and sourcing professionals need to be prepared for both a potential slowdown in demand and supply shortages. Focusing on innovation and sustainable solutions with suppliers can help them stay ahead of the curve in the next year.
Innovation Can Help Reduce Costs – In Energy and Other Categories
Innovation will be particularly important in the energy category in 2023. Procurement teams can bolster their long-term energy strategy by integrating technological innovations such as real-time tracking of electricity and gas consumption, which can help reduce costs by improving negotiating positions.
In addition, distributed energy technologies such as on-site renewable energy can help companies hedge against the volatility of fossil fuel prices.
Prioritize Green Technologies and Working with Sustainable Suppliers
2022 saw increased focus on building sustainable supply chains to accelerate progress toward a carbon-neutral economy. That trend is likely to continue in 2023 as existing and upcoming sustainability requirements come to the forefront.
It’s especially crucial for categories affected by raw material shortages such as construction and engineering.
To mitigate supply chain disruptions, relationship-based engagement with suppliers is essential. Category and sourcing teams should prioritize working with suppliers who are focused on ESG reporting and enablement and focus on long-term sustainability to meet ESG goals and lower costs through new green technologies.
Volatility and uncertainty in 2023 will make it difficult to control costs if you’re not prepared.
To learn more about the most important actions procurement teams in 22 indirect and direct spend categories can take, download and read the GEP Spend Category Outlook 2023 report today.
