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2009 is winding down. Sigh. Well, not so fast. While many economists are promising that the worst of the recession is over, we're certainly still far from the carefree, day-to-day hum of a decade ago. So while it's important to start preparing for better times, it's equally as important to remain vigilant and educated about the current ecosystem in which we live, work, profit-and sometimes fail. Let's take a quick look back at 2009, and see what trends, challenges, and strategies we can uncover as we look towards 2010 and a brighter-and hopefully much greener-future.
Death of the Supply Chain
Perhaps the most significant trend of 2009 is the theoretical and strategic shift away from traditional linear supply chains, and towards the sprawling, vastly more complex, demand-supply networks of the future. As companies continue to look beyond their four walls for faster, cheaper labor, parts and manufacturing, supply chains are becoming more and more outsourced and multinational. The ways companies design, build and deliver goods today are markedly different from the approaches taken only 10 years ago, when manufacturing was conducted via a vertically integrated, "in-house" model.
So what do we stand to learn from the "death" of the supply chain? A lot. First, a more sophisticated value network demands more sophisticated processes, analytics and operations. Traditional on-premise approaches to supply chain management simply fall short when it comes to overseeing and making decisions about today's vast demand-supply networks. Management needs to extend well beyond the four walls of the brand owner, not only to first-tier suppliers and retailers, but all the way to small, often less sophisticated trading partners at the third or fourth tier. In short, the death of the supply chain means that companies, in order to remain competitive, must take a complete, integrated approach to demand-supply network management.
Mitigating Risk-In an Economic Downturn
Mitigating supply chain risk is high on most companies' business agendas regardless of the economic climate, but in today's precarious landscape the stakes are significantly higher. Indeed, failure to respond quickly enough to sudden changes in consumer behavior or supplier reliability can result in huge financial losses-in the form of lost sales and unhappy customers.
Not only are the financial stakes higher when it comes to managing risk in today's economy, business itself is significantly more "risky" during a recessionary period. The unforeseen failure of a key-or even second-tier-supplier or retailer is something many businesses today simply can't afford. But in today's economy, business failure is rampant-with more layoffs, cutbacks, and bankruptcies occurring every day. Increased supplier financial risk is therefore a top concern for supply chain executives, threatening to disrupt the ever-delicate balance between supply and demand.
Energy, commodities, labor rates and currencies are all more volatile today than they have been in years-making supply chain planning significantly more risky, and contributing to overall budgeting issues. Unpredictable prices and availabilities of basic resources are certainly not conducive to a smoothly running value network, and require much closer monitoring (i.e., visibility) and preparedness.
It's easy to see, then, why risk mitigation received so much attention this year-and also why so many capital-starved companies were willing to invest in technologies promising to reduce supply chain risk, as part of an effort to maintain profitability.
Improved Supplier and Customer Relations
With more risk and fewer resources, supplier and customer relationships are more important than ever. Particularly as companies have continued to outsource and "go global," trading partners today are key players in the overall functionality and profitability of value networks. Indeed, many companies today have begun to think about suppliers and customers as "virtual" members of their own companies-as integral to economic success as the employees and technologies housed within the four walls of the governing enterprise.
This past year, the most successful companies tailored their business processes and strategies around their customers-focusing their resources on achieving high customer service levels. Of course, good customer service has always been a cornerstone of a sound business plan, but with fewer consumers actually buying, and less money to spend overall, delivering optimal customer service is a true necessity to maintaining a positive cash flow.
Supplier relations are equally as important, with your company's ability to match supply with demand precariously hanging in the balance. So what's the key to good supplier and customer relationships? Connectedness. In today's global, recessionary economy, the sustained health of your demand-supply network relies on complete, automated trading partner integration. The ability to monitor, communicate and exchange data with suppliers, manufacturers, logistics providers, distributors and customers is essential in today's fast-paced, "virtualized" marketplace. Not only does an integrated value network mean better supplier performance and customer service, it also means faster, more seamless information flow. And that translates to improved flexibility, control and overall demand-supply network performance.
Reduced Budgets, Focus on Sell Side and ROI
For business owners and employees alike, 2009 will undoubtedly be remembered as a fundamentally capital-starved year-marked by budget cuts, layoffs and bankruptcies. For supply chain executives, this has meant drastically reduced IT budgets-but certainly no shortage in workload and corporate expectations. Of course, with far fewer dollars to spend on supply chain technologies, the focus this year has been on fast payback, meaning only those technologies with proven, rapid return on investment (ROI) would be considered. Additionally, with demand-related issues being among the top-ranked causes of value network disruptions over the past year, companies have also focused their limited resources on sell-side issues.
As discussed in the previous section, stellar customer service has become more critical in today's business environment, forcing companies to take a closer look at their sell-side processes and operations. Inefficient or fragmented sell-side processes can lead to the following set of business problems-all ultimately resulting in decreased customer service: poor visibility into channel sell-through and inventories; inaccurate demand forecasts; high product returns and write-offs; expedited transportation costs; and inefficient customer order management, among others. Historically, many companies have not devoted resources to improving their existing sell-side practices, but 2009's customer-centric focus pushed many companies towards more collaborative, automated sell-side initiatives.
Ironically, for some companies, the added pressure and urgency actually served them well, translating to carefully selected investments in on-demand software solutions offering rapid deployment and significant ROI on demand network processes across the board-including sales order management, channel inventory management, demand planning, and logistics visibility. Meanwhile, other companies failed to make intelligent investments, meaning that they were unable to upgrade their supply chains with the capabilities needed to reduce risk, improve supplier relations, and effectively manage an increasingly complex, dynamic demand-supply network.
So what can we take away from 2009? If nothing else, a new concept of supply chains and what it takes to effectively manage them-recession or not. A vertically integrated business model has been replaced with multi-tier outsourcing and a move towards a fabless, virtualized business ideal. Supplier management and customer service were-and continue to be-of the essence. Mitigating risk took on a new sense of urgency, as even minor disruptions could be the difference between bank-breaking stockouts and profitability. All in all, it's been a rough year-to say the least. But as we prepare for better times, we should carry with us the hard lessons of 2009. They may be equally valuable in the prosperous years yet to come...
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