Executive Briefings

Thriving in a Recession: Value Chain Strategies at Work   

Supply chain has become too fundamental an opportunity to pull the rug out from under it when the heat gets high.

The natural reaction in a downturn is to retreat, cancel all new initiatives, pull back to just the basics, and tighten the ship. But smart companies across industries will be much more strategic, targeting areas that will not only see them through a rough economy, but help them thrive during and after it passes.

The fact is supply chain management (SCM) is a long-term play. Smart companies don't make short-term changes in strategy. Instead, they invest through the downturn in technology and process. AMR Research hears this not only from our value chain clients, but also even from software and service vendor clients serving these companies.

This doesn't mean companies can't take some short-term actions to help them survive and thrive in a downturn. Short-term activities, however, can't counter long-term strategies, but they do bolster efforts during rough economic times. To help, we broke down the strategies into planning and execution initiatives.

Consider the following planning initiatives:

1. Improve order and inventory visibility to help with customer promising and ATP.
2. Reevaluate your company's hierarchy of supply chain metrics, shifting focus and effort accordingly.
3. Analyze the right tradeoffs at the execution level based on assumptions made in the sales and operations planning (S&OP) process, such as better alignment of S&OP and execution.
4. Develop contract-manufacturing partnerships and incorporate this strategy as part of the emerging business model.
5. Create cross-functional teams to enhance service parts planning
6. Optimize supply costs, availability, and liability to immediately benefit income statement and balance sheets.

Consider the following execution initiatives:

1. Use downstream data from distributors and channel partners more effectively for better forecasting and demand planning.
2. Maintain service management focus. Do not cut back as the volume of original equipment orders decline. Your ability to service is vital to your revenue stream.
3. Program management execution becomes increasingly important. Ensure program and project managers have information and data access to react to issues and mitigate risk. This is less a technology issue and more a process/culture shift. This includes distributed engineering and supplier integration. It should also incorporate project portfolio rationalization.
4. Use a cross-functional team to focus on demand shaping, closing the gap between forecasts/orders, supply chain inventories, and the financial budget.
5. Partner with suppliers to jointly uncover opportunities to shrink costs and inventory. Provide them with better demand information and reevaluate vendor-managed inventory (VMI) agreements that incorporate risk-rewards.
6. Transportation optimization can bring quick benefits using software-as-a-service (SaaS) tools to reduce investment and implementation efforts. More than 40% of companies perform transportation management manually (spreadsheets), making this a great opportunity.
7. Although a slightly longer-term initiative, undergo a network design exercise to uncover warehouses or distribution centers that may no longer be necessary. This is also tied to transportation analysis.
8. Don't stop investing in projects that give your employees more information. Executives can't make the vital data-driven business decisions necessary in a down economy if they don't have either the data or the systems to analyze the information.

In the long run, continue to evaluate and pursue demand-driven and performance-driven strategies. But there is one long-term strategy that can be actively pursued in the near term:
making cost-improvement programs part of the corporate culture.

These strategies have to tie to and link with metrics and employee measurements of overall company profitability goals. This is an underlying tenet of performance-driven networks and joint value creation. Companies must continue to pursue these strategies, regardless of the economic situation.

Finally, knowing the economy is bound to speed back up, you can't lose focus on the days ahead. Sustain investment in the following areas to assure your future:

1. Network design--Emphasize on changes in fuel cost, currency fluctuations, and entry into new emerging markets
2. Inventory optimization--Reduce the tradeoff between cost and service with postponement strategies.
3. Supply flex strategies--Increase flexibility in response to risk.
4. Demand sensing/downstream demand collaboration--Reduce the noise in the demand signal.
5. Demand shaping/marketing optimization--Smooth out actual demand.
6. Upstream sensing/orchestration--Sense and reduce volatility in the supply line.
7. Launch execution--Handle the larger volume of new products.
8. Product transition management--Reduce waste at phase in/phase out.
9. Response management--Real-time crisis response/battlefield triage.
10. Sustainable business practice--Merger of lean and environmental initiatives, plus design for environment.
11. Product portfolio management--Ensure the most important projects go to market with limited resources.
12. Third-party engineering services (including India)--Add lower cost resources without the need to hire in the short term.
13. Value engineering and product rationalization--Reduce costs (offshore engineering resources are available here as well) Collaborative design application--Better coordinate with partners for design and reduce the cost of travel.

Our industry value chain team will continue to investigate and research best practices in all these areas to help clients survive and thrive whatever comes their way. Let us know how we can help--bpolk@amrresearch.com.
http://www.amrresearch.com

Supply chain has become too fundamental an opportunity to pull the rug out from under it when the heat gets high.

The natural reaction in a downturn is to retreat, cancel all new initiatives, pull back to just the basics, and tighten the ship. But smart companies across industries will be much more strategic, targeting areas that will not only see them through a rough economy, but help them thrive during and after it passes.

The fact is supply chain management (SCM) is a long-term play. Smart companies don't make short-term changes in strategy. Instead, they invest through the downturn in technology and process. AMR Research hears this not only from our value chain clients, but also even from software and service vendor clients serving these companies.

This doesn't mean companies can't take some short-term actions to help them survive and thrive in a downturn. Short-term activities, however, can't counter long-term strategies, but they do bolster efforts during rough economic times. To help, we broke down the strategies into planning and execution initiatives.

Consider the following planning initiatives:

1. Improve order and inventory visibility to help with customer promising and ATP.
2. Reevaluate your company's hierarchy of supply chain metrics, shifting focus and effort accordingly.
3. Analyze the right tradeoffs at the execution level based on assumptions made in the sales and operations planning (S&OP) process, such as better alignment of S&OP and execution.
4. Develop contract-manufacturing partnerships and incorporate this strategy as part of the emerging business model.
5. Create cross-functional teams to enhance service parts planning
6. Optimize supply costs, availability, and liability to immediately benefit income statement and balance sheets.

Consider the following execution initiatives:

1. Use downstream data from distributors and channel partners more effectively for better forecasting and demand planning.
2. Maintain service management focus. Do not cut back as the volume of original equipment orders decline. Your ability to service is vital to your revenue stream.
3. Program management execution becomes increasingly important. Ensure program and project managers have information and data access to react to issues and mitigate risk. This is less a technology issue and more a process/culture shift. This includes distributed engineering and supplier integration. It should also incorporate project portfolio rationalization.
4. Use a cross-functional team to focus on demand shaping, closing the gap between forecasts/orders, supply chain inventories, and the financial budget.
5. Partner with suppliers to jointly uncover opportunities to shrink costs and inventory. Provide them with better demand information and reevaluate vendor-managed inventory (VMI) agreements that incorporate risk-rewards.
6. Transportation optimization can bring quick benefits using software-as-a-service (SaaS) tools to reduce investment and implementation efforts. More than 40% of companies perform transportation management manually (spreadsheets), making this a great opportunity.
7. Although a slightly longer-term initiative, undergo a network design exercise to uncover warehouses or distribution centers that may no longer be necessary. This is also tied to transportation analysis.
8. Don't stop investing in projects that give your employees more information. Executives can't make the vital data-driven business decisions necessary in a down economy if they don't have either the data or the systems to analyze the information.

In the long run, continue to evaluate and pursue demand-driven and performance-driven strategies. But there is one long-term strategy that can be actively pursued in the near term:
making cost-improvement programs part of the corporate culture.

These strategies have to tie to and link with metrics and employee measurements of overall company profitability goals. This is an underlying tenet of performance-driven networks and joint value creation. Companies must continue to pursue these strategies, regardless of the economic situation.

Finally, knowing the economy is bound to speed back up, you can't lose focus on the days ahead. Sustain investment in the following areas to assure your future:

1. Network design--Emphasize on changes in fuel cost, currency fluctuations, and entry into new emerging markets
2. Inventory optimization--Reduce the tradeoff between cost and service with postponement strategies.
3. Supply flex strategies--Increase flexibility in response to risk.
4. Demand sensing/downstream demand collaboration--Reduce the noise in the demand signal.
5. Demand shaping/marketing optimization--Smooth out actual demand.
6. Upstream sensing/orchestration--Sense and reduce volatility in the supply line.
7. Launch execution--Handle the larger volume of new products.
8. Product transition management--Reduce waste at phase in/phase out.
9. Response management--Real-time crisis response/battlefield triage.
10. Sustainable business practice--Merger of lean and environmental initiatives, plus design for environment.
11. Product portfolio management--Ensure the most important projects go to market with limited resources.
12. Third-party engineering services (including India)--Add lower cost resources without the need to hire in the short term.
13. Value engineering and product rationalization--Reduce costs (offshore engineering resources are available here as well) Collaborative design application--Better coordinate with partners for design and reduce the cost of travel.

Our industry value chain team will continue to investigate and research best practices in all these areas to help clients survive and thrive whatever comes their way. Let us know how we can help--bpolk@amrresearch.com.
http://www.amrresearch.com