Best Practices

• The pandemic becomes endemic. I think that this is playing out as expected in the United States and much of the rest of the world, with a key exception being China. In the U.S. there have been rolling waves of COVID-19 and a variety of strains becoming dominant. However, these strains have been more contagious but arguably less deadly. Also, there have been additional boosters approved and administered. These factors have led to a general relaxation of rules, including the end of the mask mandate for air travel and the removal of the requirement for a negative COVID test to enter the U.S.  I expect this will continue to represent the COVID-19 environment for the next year or so, barring a major change in the virus itself. China is the major outlier in the way it has handled the virus; it continues to have a “zero tolerance” policy and has executed numerous shutdowns of major cities, despite significant complaints from residents experiencing hardships.
  
  Business impact: The government, business and consumer response to the pandemic is an important factor with regard to demand.  Most recently, OPEC maintained its forecast that world oil demand would rise by 3.36 million barrels per day, extending recovery from the slump in 2020. However, it did note that risks exist for the second half of 2022 due to the pandemic (especially considering China’s response) and the war in Ukraine. In addition, I would note that high gasoline and utility prices may lead to some degree of demand destruction over time.  I suggest you take a close look at your demand projections for the second half of the year, taking into account these factors.

• Employee expectations have changed. I believe this trend is intact and will continue into 2023. Employees are expecting higher wages and more flexibility with regard to working from home. Many companies are offering options for employees to work part time in the office and part time from home. Perhaps if the economy slows later in the year due to higher interest rates, the “Great Resignation” will slow down, too, and the workforce will stabilize.
  
  Business impact: Ensure you “right-size” your labor force considering the environment and your company-specific plans. Keep pay in line with the industry, and consider providing some flexibility on working from home.

• Electrification of vehicles is accelerating.  This trend is intact and will be supported further by the high gasoline prices experienced in 2022. According to the IEA, electric car sales represented 2.5% of global car sales in 2019, 4.1% of global car sales in 2020 and close to 9% in 2021. China’s official target is for electric cars to reach a market share of 20% for full year 2025. In Europe, electric cars accounted for 17% of total car sales.
  
  Business impact: Review your demand projections, taking into account accelerating penetration of EVs. Test capital project returns for various demand scenarios representing differing penetrations of electric vehicles in the market.

• Inflation is likely to continue into 2022. This has certainly come to pass! I do expect that the next six months could bring some tapering of inflation, as we are already seeing the prices of some commodities falling (such as copper, lead, aluminum, zinc, corn and soybeans). However, I expect the price of oil to remain stubbornly high, and that impacts other materials and services, such as chemicals, utilities and transport costs. In addition, we have already seen interest rates go up, and more increases are expected between now and the first quarter of 2023.
  
  Business impact: Ensure you understand on a real-time basis the impact of inflation on your business. Pass on cost increases promptly to customers to maintain margins to the extent possible. Ensure your procurement organization is challenging cost increases across the supply chain. Ensure you understand the impact of interest rates on your business, especially if you have loans coming due, you have variable rate loans or you will need financing over the next year.

• Conscious consumption is growing. While I do believe that this is a clear long-term trend, I expect it will take a back seat with consumers during 2022 and 2023, as there are bigger concerns like inflation and recession.
  
  Business impact: If you were planning new product launches around this trend, you may wish to reconsider timing. I would prioritize product launches that offer consumers cost savings and efficiency.

Here are a few other trends that I would pay attention to for the rest of 2022 and into 2023:

• Prepare for recession. While I believe the U.S. will avoid recession, I do think that we will see demand slowing for oil products due to high prices and low consumer confidence. In fact, in June the University of Michigan survey of consumer sentiment was lowered to 50.0, marking the lowest level on record.  Consider preparing your company for recession by taking such actions as re-evaluating capital projects, dropping unprofitable products and services, optimizing inventory, carefully managing costs and paying closer attention to pay terms and collections efforts.
• Scrutinize your geographic footprint and your supply chain given growing international tensions. After a long period of globalization, the risks of long and complex supply chains came into sharp focus during the pandemic. In particular, the risks of supply from China became more apparent as China abruptly shut down economic activity when COVID cases emerged. The war in Ukraine has shown the risks associated with dealing with countries with dictatorial leaders. Consider reducing country and supply chain risk in your operations, even if you incur some costs to do so.

This is a time of significant uncertainty and risk. Thus, a mid-year check of the how the latest trends may affect your business is prudent.  

Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. Contact her at saralefcourt@gmail.com or (908) 400-5210.