Economies such as the US and Europe are slowing sharply, and significant Asian emerging-market economies are expected to constitute nearly 3/4th of global 2023 GDP growth. Considering the above factors, a key question dwelling in the minds of leaders of the world's top economies for the last six months is whether a recession is on the horizon?

The current world order in recent times has undergone unforeseeable ramifications. The economic turmoil rippling from Russia's invasion of Ukraine and the long-term impacts of the COVID-19 pandemic have disrupted supply chains, international trade, food and fuel prices. The GDP growth is slackening all over the world. 

Economies such as the US and Europe are slowing sharply, and significant Asian emerging-market economies are expected to constitute nearly 3/4th of global 2023 GDP growth. Considering the above factors, a key question dwelling in the minds of leaders of the world's top economies for the last six months is whether a recession is on the horizon?

Effect of Economic Meltdown on the Healthcare Sector

Even though history offers lessons, not all industries have become fully recession-proof. Contextually, the healthcare industry as well might witness a significant impact if an economic meltdown becomes imminent. The macroeconomic environment is an extrinsic factor for healthcare companies and is beyond the control of a single organization or a sector.

Due to an abate in disposable income, an economic contraction would result in a reduction in demand. This can hamper the top line and bottom line of healthcare companies. Consecutively, it might disturb the healthcare environment and supply chain infrastructure balance due to a surge in unemployment. 

Additionally, a possible decrease in the value of financial assets and equity can impel organizations to alter their spending patterns. This might impact the manufacturing, supply, and R&D investment, affecting the accessibility and affordability of healthcare drugs.

Global and regional disruptions also create turbulence in the supply chain, resulting in increased costs, complex logistic channels, and lower productivity. The volatility in feedstock and energy costs significantly impacts raw materials' margins globally.

The disruption from the unprecedented circumstance affects the overall supply chain of the healthcare sector. Hence, developing strategic agility and resilience in supply chain networks is necessary to sustain and lead the market, as explained below:

Procurement of Raw Materials: The cost of procuring raw materials increases in case of economic adversity. Due to shortages and high production costs, healthcare firms have to buy their raw materials at inflated prices. 

Financial metrics such as cost improvement programs (CIP) and market movement forecasts (MMF) are widely affected due to increased prices. This demands healthcare firms to implement strategies such as dual sourcing, cost benchmarking, should-cost modelling, and contractual excellence to mitigate their effect.

Network optimisation: The logistics part of a healthcare supply chain suffers from an economic disruption due to increased fuel prices, reduced workforce, and crippled last-mile connectivity from supplier warehouses to manufacturing plant sites.

To overcome these, firms need to address vulnerable logistical routes and key transportation access points on priority. Additionally, firms should discover new alternatives to ensure the best utilisation of routes with better delivery lead times, cost optimisation, order accuracies, and maximum capacity utilization of the warehouses, boosting better stock rotations.

Regionalisation strategy: Agility, reliability, and resilience of a healthcare supply chain are widely affected due to limited transportation channels, inflated energy prices, and increased tariffs or customs duties between different continents in case of recession. 

There is a need for an agile global supply chain to hedge geopolitical impacts and increase local network coverage and smaller trade groups. The strategy framework depends on various factors like working capital, tariffs, non-economic factor, and policy interventions.

Resizing company units: The economic slowdown introduces irregular demand patterns, tariff changes, and sluggish production, directly impacting revenue generation. Healthcare firms tend to revaluate their operations, resulting in workforce realignment. To overcome these, new agile methods need to be identified to attract finances and scale up the talent pool per regulatory policy changes.

Inventory management: Due to decreased cash flow, firms experience high inventory levels from the cancellation of orders and expiring medicines. To minimize the impact, a firm can develop shock-resilient contingency plans, including alternate or local suppliers, stock management, and just-in-case strategies for susceptible segments in the supply chain process. Better management promises better on-time in full (OTIFs), warehousing costs, and turnaround time (TAT), improving inventory optimization and production efficiency.

Contracts management: Firms witness inflated prices and decreased availability of raw materials for procurement during an economic downturn. Long-term contracts and cost transparency with suppliers can be developed to reduce the impact, boosting closer supplier relationships and increasing data sharing for better prediction. Companies can efficiently manage uncertain conditions with better contracts, lifecycle time, value assessments, and clauses to contain risks like authorizations, insurances, and renewals.

The healthcare industry undoubtedly witnessed growth during the Covid-19 era. However, one should not overlook that drug demand and the healthcare supply chain are more likely to be hampered during a possible recession. 

Keeping in mind such scenarios, the healthcare industry should be on the lookout for tools such as predictive analytics to strengthen its supply chain and ensure the adoption and implementation of newer strategies with a higher level of assurance. 

For healthcare companies to grow, predictive analysis is a proactive tool to improve the capacity to foresee demand. It enables organizations to be ready with alternatives to minimize major impacts and provide visibility throughout the supply chain as well as provides real-time information from the entire digital ecosystem to improve overall performance, profitability, and sustainability.