A counterargument to cutting staff and inventory.

One of those rituals that takes place around this time is developing the business plan and related budgets for the new year. Deciphering the crystal ball, discerning optimism from reality in the sales forecast, determining budget capital investments and human resource needs, and so on, is always a complex task. The very unusual pandemic/post-pandemic world we are now in makes it even more so.

As we look to 2022, we see some unusual and especially onerous hurdles: a more strained supply chain, deteriorating consumer sentiment, increasing inflation, and segments of the economy still reeling from the worst days of the pandemic. While no single hurdle can be compensated for, the combination of threats can tempt the planner to take a conservative approach and decide it’s time to hunker down.

But what does a conservative approach to planning and budgeting really mean? Typically, plans might include reducing inventory, cutting back capital spending and trimming staff (or hours worked by staff) to “right size” expenditures with the projected (feared?) lower levels of business. All are prudent steps that in normal times should be considered when an industry or the economy shows symptoms of fatigue. The problem is these are not normal times!

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