Global markets and supply chains are intricately intertwined. Businesses are heavily reliant on supply chains – and vice versa. When the economy hits a slump, there are all sorts of downstream effects affecting supply chains that businesses need to contend with. Any business owner who deals with physical goods or parts needs to understand how these two intersect, and how they can use that to their advantage.
Key Economic Factors Affecting Supply Chains
The global economy is made up of established markets and emerging ones. Emerging markets play a leading role in the shaping of supply chains. As these economies grow, they offer new sources of both demand and supply, and this influences global trade patterns.
International trade agreements are another key factor affecting global supply chains. These agreements often determine tariffs and regulations that directly influence trading conditions between nations. When trade wars happen or sanctions are imposed on a country, this can affect supply chains. New trading routes may need to be established and sometimes, depending on the sanctions, even new business relationships will need to be created.
Currency exchange rates also play a role in the workings of supply chains due to their impact on international supply and demand. A weak currency makes a country’s goods cheaper for foreign buyers but increases costs for imported inputs needed in the manufacturing process. This is a tricky thing to balance, particularly for multinational organizations that have to service many jurisdictions.
Challenges and Opportunities in Supply Chain Management
As you might imagine, given the many different ways that the global markets can affect supply chains, this creates both challenges and opportunities. One key challenge is addressing any vulnerabilities in the network – but this can sometimes be unpredictable.
Back in 2021, a container ship ended up stuck in the Suez Canal and caused all sorts of disruptions to supply chains. Earlier this year, it almost happened again. Rather than trying to predict what may happen, businesses should focus on having backup solutions ready for any time that their supply chain is disrupted.
Another way to mitigate the impacts of these unforeseen disruptions is through trading. A business owner concerned about the economic outlook and its impact on their operations might buy futures contracts to mitigate their risk. By purchasing S&P 500 futures contracts, for example, the business owner is essentially speculating on the value of the S&P 500 index in the future. They could lock in today’s price, offering themselves some insurance against a downturn. Businesses should, however, always perform due diligence before attempting this.
Moreover, although investment in futures will go some way to mitigating their supply chain risk, businesses need to embrace adaptability and resilience in all of their operations. Think about all the different ways your business could be impacted and have a plan of attack for each scenario.
Accepting that the world is changing and things are moving quicker than ever before may sound daunting, but it’s also exciting. Modern business owners need to embrace the challenge and be prepared for whatever comes speeding around the corner next.