Posted on August 12, 2011 by Dr. Edward F. Knab
It doesn’t matter if they call it a recession, depression or something else, the world economies are on the brink of a double dip recession. Consumer confidence is is now at its lowest level in 50 years and companies must develop effective strategies in order to survive these challenging times.
While there is little wrong with prudent cutting costs, the companies who emerge from economic downturns quickest and gain the most market share are those who applied innovation during the downturn to add value to their business and their customers. It is during these challenging times that companies often separate themselves from mediocrity by integrating high degrees of innovation.
Generally, in time of economic uncertainty, the concept of innovation is not even up for discussion, whereas it should be the basis for all ‘going forward’ decisions. Traditional supply chain issues such using innovative means to get products people want to buy to them faster and cheaper is the foundation for improving the value equation we bring to the table. Our focus should be on adding value to the customer rather than cutting costs. All of our focus as innovators should be directed at “added value”; even the act of cutting cost is in reality adding value.
Supply Chain innovators provide value to their customers by improving systems which result in improving profits. The great majority of all improvements are of an incremental nature rather than a single “big bang”, they are a result of constant and never ending improvements (CANI). Companies that can integrate some simple philosophic approaches into the customer relationships can create greater value for their customers and themselves, and will gain competitive advantage in the marketplace, especially as the economy improves.
Listen to your Customers.
Get to really know them, live with them, understand their opportunities and support them. Most companies will tell you they know their customers but it reality they know the statistics of what and when they buy but do not know what their customers’ problems and challenges are. Often, the answer is Supply Chain related, businesses need to be asking their customers; what worked? what didn’t? and what next? and often the result is technology-assisted collaboration which creates a foundation for a new and improved relationship. It starts with demand signals – knowing what quantities and mix of products are selling in each store or region for you, your customer, or your customer’s customer. Supply chain integration and visibility applications can be the conduit making channel collaboration possible.
Reduce Transportation Time and Cost
Fluctuating energy cost are an underlying cause of our current economic turbulence, with supply chains lengthening and fuel costs on a roller coaster ride, transportation costs and risks are areas that must be stabilized first. Some of the strategies that can help in the long term are network design, near-shoring, and local production and distribution. In the short term Transportation Management Systems can help reduce cost and optimize efficiency. The concept of shippers co-operatives are gaining new traction as volumes decrease and in stock inventory is a mandate. Eliminating empty miles through arranging back-hauls and continuous moves, automating yard movements and appointment scheduling, and providing portals for carrier and customer communication can significantly improve efficiency.
Optimize Working Capital and Reduce Cost
The economic challenges should result in a good long look in how we are leveraging out capital and help us identify area where we may improve our utilization. Cost reduction programs that mandate cost cutting percentages across all departments only reward those who ran too fat in the first place. More importantly, they are not geared to adding value to the customer. In fact, the opposite is usually true. The right way to reduce cost is to start with customer demand signals. Follow the demand signal up through the demand chain to manufacturing and suppliers, then down through distribution to the customer or the store shelf. Examine each point along this journey to see what adds value and what doesn’t. Cut everything that does not add value. That is the principle of lean supply chains.
Innovation requires improving processes by leveraging best practices and technology to create better flows of product, people and information. Look at order management, manufacturing and procurement, distribution and transportation. There are significant new developments in technology supporting these areas. For example, using a single system to track raw materials and purchased components, sequence them into and through production, and then tracking the combined output through distribution improves manufacturing and distribution efficiency, and has huge traceability benefits in case of recall.
Make Good Decisions based on Good Data:
Often ERP systems have failed to live up to their promise of integrated and assessable supply chain data and management has been hard pressed to make good decisions. Management needs real-time access to accurate, meaningful information which was supposed to be the promise of ERP. However, the batch nature of ERP and its lack of supply chain detail have shown the reality to be less than optimal. What are needed are business intelligence tools that link, sort and analyze data from all the supply chain systems and trading partners to present meaningful, personalized information to executives in real-time. This information is displayed on graphic dashboards that are easy to comprehend and act upon, yet can be used to drill down to get to the root cause of problems. The good news is these business intelligence systems are available today. They give supply chain management the tools they need to respond with agility to the ever-increasing variability of demand and take advantage of new market opportunities before the competition.
After years of down-sizing, right-sizing and lean, most companies are already running full out. Cutting heads may cut costs, but it also cuts customer service while raising overtime expense and blood pressures. Go from survival mode to competitive advantage by empowering your employees through a performance-focused culture. Look to innovate, everywhere! It won’t all work but your organization will learn from it, they will learn that controlled failure is acceptable providing there is a plan with predefined outcomes and a method of coordination. Promote learning to insure your organization is in tune with the latest supply chain innovation in the market. Challenge the organization to get closer to the customer at every touch point; senior management, buyer/seller, AP/AR, SCM/Customer Service and others.
If your company is attempting to cope with turbulence in your supply chain the Supply Chain Experts can help you design a program that satisfies the requirements of your customers while insuring the optimal data flows to accurately control your global supply chain.
Dr. Edward F. Knab
Productivity Constructs, Inc.
800 660 8718 office
949 413 7333 mobile
More Supply Chain Experts Blogs
Dr. Knab is an academic practitioner and seasoned supply chain expert whose company, Productivity Constructs, Inc., is focused improving global leadership and thereby creating more effective organizations and higher levels of job satisfaction. Dr. Knab can be contacted for speaking engagements, coaching, or consultation at firstname.lastname@example.org, email@example.com or www.edwardknab.com.