Well, we may be lacking in orders, but during these tough economic times, we certainly aren’t lacking in ideas for what to do with your supply chain during the downturn.
My role means I am on more email lists than most, and it seems like every day I get a message from someone (technology vendor, consultant) with ideas on what you might be doing now to manage better during this period, or to sow the seeds of success for the recovery that, Yes, will surely come. You will find the same types of post/reports on many vendor/publication web sites.
One challenge, of course, is separating the actual good ideas from those that are thinly disguised marketing pitches, although it is a fact that if the money is available, these periods can be an excellent time to invest for the future.
“The key point is that the disconnects between marketing and SCM that we can live with in flush times simply are killers in a recession – and the cost to fix them is just the price of more dialog and better listening skills."
What do you say?
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I have been placing as many of these idea pieces as I can find in a folder, and today wanted to share some of the best of them. Next week in our On-Target e-magazine, we will share some more of the details, so you can see them all in one place.
I very much liked the short report we received from Jim Kilpatrick of Deloitte Canada on their ideas for improving working capital/cash flow, extra important in this slow down because not only are profits thinning, but just getting the credit that companies generally expect to be there is still tough (unfreezing that of course is key to recovery).
The report notes, for example, that while companies naturally will seek to reduce inventories, it may be harder than they realize, and/or that “meat cleaver” approaches may have big negative impacts on customer service.
“Sustainable savings will most likely require fundamental improvements in demand planning, inventory and safety stock policies, production planning and scheduling, lead time compression, network-wide available-to-promise, and SKU rationalization,” the report says, among the 10 ideas it offers to improve cash flow.
Terry Harris and Chicago Consulting also developed a list of 10 SCM ideas for tough times. A very practical and perhaps overlooked opportunity is to re-look at routing guides for internal and supplier shipments, and to tighten down enforcement of those guides. There may be lots of savings available for relatively little effort.
Harris also focused on inventory, noting that taking a hard look at safety stock policies at a SKU level may uncover inventory reduction potential without sacrificing service. This is an exercise that far too few companies perform often enough, or lack the tools to do so effectively – now is a great time to make the effort.
Our friend Jim Tompkins of Tompkins Associates notes that there is a difference between “reducing” and “cutting.”
“Today, cut, cut, cut and cost reduction are considered the same thing. This is a disaster, as cut, cut, cut done across the board without more definition will not result in greater organizational success,” Tompkins recently wrote in a blog. “On the contrary, it will lead to stagnation and declining profits. Yes, haphazard, across the board, uniform, indiscriminate cost reduction will beget the unintended result of less profits, not more.”
Most of us have seen this dynamic in action some time in our careers. I certainly have.
Alan Earles of Microsoft’s business applications group notes in a recent blog post that tough times increase the risk of fraud and theft in supply chain operations, and that companies need to up their level of vigilance and security to avoid an increase in losses. He notes, for example, that a Tennessee factory worker was charged recently with stealing almost three tons of pure tin worth an estimated $57,000 from his employer. It’s probably not something anyone is wild about doing, but the reality is you really do need to look at a wide variety of potential risks for fraud and theft and do your best to mitigate those vulnerabilities.
Justin Fogarty of Ariba says that now is the time to really focus on collaborating with suppliers to reduce costs in a win-win framework. He cites, for example, that India’s Tata Motors “focused on defining functional needs, rather than stringent part specs and in doing so, the creativity of their suppliers paid off. Perhaps your own suppliers have ideas on how you can improve your products AND lower costs,” he wrote in a recent blog.
Many, such as analysts Kimberly Knickle and Simon Ellis of Manufacturing Insights/IDC, say now is the time to really prune product portfolios. This is hard at any time, but especially hard in a recession, it seems to me, because it is easy to see the lost sales at a time when the top line is challenged, but the cost savings (though very real in the end) are generally less obvious.
“Even though manufacturing is becoming more flexible every day, the proliferation of SKUs wreaks havoc on the production schedule, not to mention the inventory management challenges,” Knickle and Ellis wrote in a recent research note. “High SKU count also makes forecast accuracy/supply chain planning more complicated, and with the growth of private labels, if manufacturers don’t get their SKU-house in order, retailers will do it for them. And don’t just use cost information to identify which products to cut - use historical demand information to support the decision.”
Gérard Cachon of the Wharton School of Business notes that now is the time more than ever for marketing and the supply chain to get on the same page. While writing primarily from a retail context, his advice is spot on for companies in any industry.
"There's a lot of volatility right now, and with a lot of volatility, a retailer who typically runs with very small profit margins can go from making money to losing money pretty quickly," Cachon says. “Ensuring that the company stays profitable is going to require some experimentation and probably a lot of coordination between the marketing and supply chain," he says.
The key point is that the disconnects between marketing and SCM that we can live with in flush times simply are killers in a recession – and the cost to fix them is just the price of more dialog and better listening skills.
GR Gopikrishnan of Infosys, on the consulting/technology firm’s excellent supply chain blog, says companies should consider very creative ideas on the sell side, such as “take now, pay later” plans, even in B2B, and perhaps even something akin to “rental” models for some equipment and systems.
He also sees opportunity in focusing on distribution and fulfillment processes, such as better support for multi-channel fulfillment to increase sales channels/revenue, increase transportation optimization, and inventory synchronization.
There were lots more, but I am out of space. Would love your ideas/lists as well. More in On-Target next week in the Trends and Issues section.
Which of these ideas do you like? What else would you add to the mix of smart supply chain ideas for tough times? What are the important differences between “reducing’ and “cutting?” Let us know your thoughts at the Feedback button below.
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