Recession creates cruel realities on many levels--business, social, and personal--that can unfortunately lead to undesirable results. Sometimes the impact of recession is nearly inevitable, so all that's left to be done is "rearrange the deck chairs on the Titanic." For supply chain professionals, however, a high degree of awareness and a prudent approach to changing conditions can reduce the impact of a difficult operating environment.
Presumably top management initiates companywide responses to an economic slowdown with an action plan that crosses departmental boundaries and extends beyond the company. Within the supply chain function, business leaders can go further to anticipate and ameliorate the effects of this business challenge. What steps can managers take to prepare supply chains for recessionary conditions? When they know there's trouble on the horizon, they can try to gauge it, evaluate it, and deal with it. Consider the following steps.
Find out how bad the conditions are likely to be, and where. Risk management takes on new meaning when instead of talking about some hypothetical circumstances; it refers to a very real and relatively near downside. The usual processes of receiving forecast numbers from the sales department are not enough. Managers need to activate formal and informal channels that will provide access to what sales knows about customers' thinking--where they are seeing cutbacks, how deep they are going to be, and what trends are unfolding in the marketplace. The news may be bad, but everyone is better off knowing it earlier when they can do something about it than later when they've already dug themselves into a hole.
Revise standard assumptions based on changing conditions. With a better understanding of what's coming, workers can adapt to what's to be. These actions can go in many directions--cutting safety stock and order quantities, particularly for "A" items, and matching capacity to projected demand through delayed purchases or hiring's.
Change the game on how we operate. Some fundamental decisions that were appropriate at higher demand levels may be detrimental under projections of lower demand. For example, activities that had been outsourced due to capacity restraints may be better off insourced to best use the company's internal resources. Another view of the supply chain may indicate that various links in the chain that were put into place to handle high and variable demand--warehousing and operations that support product variations--become a costly burden under lower demand and should be eliminated from the supply stream altogether.
Notify upstream players of the situation. Suppliers are in the same situation as customers, and their cooperation can help through the turbulence. By providing them more information regarding demand, customers can work to better align their supply processes with needs. Underutilization of capacity often means more flexibility on meeting product/timing/location of delivery more closely, and leaders can use lower activity levels to explore greater efficiencies in this area.
Some aspects of recession-induced pain are unavoidable, but that makes all the more urgent the need to identify and act on the areas that can be addressed. With the world shifting, it is not how well leaders can batten down the hatches but rather how nimbly they can anticipate and respond to what's coming that will make the difference between success and failure.
Wally Klatch, CPIM, has 25 years of experience as a management consultant and company executive in manufacturing and distribution firms, can be reached at Wally@Simplation.com.
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