Recession Readiness 2020: Did we learn anything?

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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Did we learn anything from the big recession? Is it really different this time? And, are manufacturing companies in better shape now to survive the next recession than they were in 2007? Recall that things were pretty bad between 2009 and 2013, when 4 million businesses
closed in the United States, almost 8 million people lost their jobs and unemployment reached 10%. But now we’ve had 10 years of strong growth and recovery. Unemployment has fallen to 3.7%. The Dow Jones Industrial Average rose 306% during that time—almost reaching 27,000.

Both the United States and world economies are cyclical with a crash roughly every nine years. And, when the stock market gets very high investors get very nervous. As if to confirm their fears, the U.S. stock market has recently become notably volatile. Compare the volatility of the last 10 months to that of the prior 20 months in Figure 1.

It’s a given that the stock market will crash again, and that might happen fairly soon. So we sought to determine if companies are now in a better or worse position to fight through the next recession than they were in 2007, just before the last recession. Have fading memories and 10 years of good times allowed bad business practices to creep back in? Have they increased their debt? Has their workforce ballooned? Have they added more fixed costs so that their cost structure is less resilient? Have they relaxed their collections of accounts receivable? To find out, we surveyed 100 manufacturing firms.

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