June 16, 2023

Hello everyone. Connor Lokar, Senior Forecaster here at ITR, checking in for another TrendsTalk. So what we’re starting to see is a little bit of a theme from the clients that we do consulting and forecasting work for, that is becoming a little bit of a concern. Which is that the lead time extension and over-ordering chickens seem to be coming home to roost. So as a reminder for folks, labor, product availability, supply chain freight issues, all really came to a head in 2021 as demand skyrocketed following COVID, riding the pent up demand, riding the stimulus waves up into the sky. These issues really carried into 2022, and as a result, lead times became massively extended relative to pre COVID norms, as you are all well aware. So for the clients that we forecast for, particularly those that we forecast their orders trend for, this led to explosive growth in that time.

Not just from real-time demand, but as well as the ongoing extension lead times and inflation led their customers to believe that lead times were only going to continue to lengthen, and then product would only continue to become more expensive. And if they waited, that would not be a good decision. So they continued to plow in orders. But now product availability, supply chain, freight issues all began to improve in the second half of 2022 and further yet so far in 2023. Now lead times are stabilizing, often even shortening now at this point. Product availability is improving and swinging into oversupply in many cases. And several of our clients are now releasing massive amounts of product downstream into their customers who are now carrying massive and elevated inventory levels compared to pre COVID norms, and realistically their comfort zones.

So the end result, orders are slowing down, if not stopping altogether for some of these folks that we work with, as their customers wait to order again until their inventory is rebalanced. And now the concern here is that these inventory turns are going to stall even further as the economy continues to slow, particularly in the physical goods side of the economy here in the second half of 2023 and transitions into recession in 2024. So this is where things were always likely to end up. The lead time extension and over-ordering, to account for that was always essentially stealing future demand that would have to be given back in the future as conditions normalized. And folks, that’s where we find ourselves.

So you’re going to want to assess your exposure to this risk, budget for and expect those reduced inventory turns, monitor your own inventory levels and avoid overbuilding and tying up too much working capital, and trying to stay liquid here and nimble as we head into 2024, should be a priority. Because folks, there is no such thing as a free lunch and in this case, a free burst of orders when you borrow from Peter to pay Paul, eventually Peter needs to get paid back. Thanks for stopping by for this latest TrendsTalk. We’ll see you on the next one.