Supply chain management in uncertain times

Tom Vigor   |  Wed, 11/05/2008 10:36 AM  |  Supplement

It's ironic that the financial crisis has given people to call the current business climate "challenging". Where have they been?

Some of the most pressing questions we all need to consider are:

* "What might happen next and how can we be best prepared in the short term?

* "How bad will it get?"

* "How long will it last?"

Think outside the box, but think logically.

First, doing nothing is not an option and thinking outside the box is a requirement. But also realize that this is not the end of the world. Yes, there will be losers, but there will also be winners and the task is to be in this latter group. That means being as good as you can be, capturing more business, and being ready to pounce when one of your competitors stumbles.

Think through the old discarded ideas that weren't appropriate at the time plus bring your teams together for some "no idea is stupid" brainstorming. Not only might you come up with something brilliant, but by engaging your best and brightest, you stand a better chance of keeping them. Conditions like we're experiencing today often cause those with the greatest talent to re-evaluate their situation and move on. You may need fewer people, but not fewer good ones.

Although we don't know the answers to the above questions, you should develop a series of "what-if" planning scenarios that will allow you to either (as quickly as possible) gear down or ramp up your activity to take advantage of opportunities or quickly respond if business continues to decline or drop dramatically.

Supply chain management: A real opportunity.

I suggest engaging your best and brightest who affect this area -- both directly and as internal customers -- to brainstorm the following areas. But first, a truth: Given today's business climate, "everything is negotiable", and that is more true today than ever.

Analyze your supply costs. Start with a list or Pareto of supply costs. Which ones can have a short-term impact on the business? Look for quick wins that attract no additional costs (contract penalties, volume discounts, etc.). Challenge your assumptions and your information systems (IS). Recently, in Indonesia, a client's lack of clear information resulted in excessive stock levels, excessive holding costs, significant amounts of slow or non-moving material and the lack of a clear vendor assessment procedure, largely due to inaccurate information.

Inventories: An Aladdin's cave of riches.

Dozens of inventories in all kinds of industries have huge surpluses to draw from, without spending new money. For example -- believe it or not - enough spare steel lying around to build a ship, enough medical supplies to last over a year, and excess holdings of both finished goods and work in progress -- all available to offset any new spending. Don't rely on your IS system to tell you it's there, because most of the time it won't. You'll have to go physically find it. And while you're finding it and spending it, spend some time too to ask, "Why it was there?" Ratchet your velocity up for longer term savings.

Vendor management.

Rethink your vendor management system. Renegotiate terms and delivery options. The situation right now favors the buyer so take advantage of it. Make sure you are matching your purchasing to your utilization. Packs of 10 may have a unit cost lower than packs of five, but not if you consistently throw three or four away. Treat your durable inventory as though it were lobsters -- expensive to buy and smelly if they're not used. (Consider putting "sell by" dates on everything to drive high stock turns, utilization and reduce obsolescence.) Get your purchasers and users together to understand utilization and coordinate purchases through fewer vendors for better prices.

Revisit past make-buy discussions in light of the current situation -- currency rates and depressed customer demand -- and again, think outside the box. Is there something you're making or providing that someone else can do just as well -- or better -- at less net cost to you?

Finally, ensure that you are among the winners:

* Be the best that you can be. In all that you do, redouble your efforts to delight your customers. Take advantage of any surplus staff to drive out costs, improve quality, provide better customer service, and maintain or even expand your presence in the marketplace. Be clear about payment expectations to avoid accounts receivable issues.

* Be ready. To be the best that you can be is hard work so it's a good bet that one of your competitors will cut corners or ignore issues and when they stumble, be ready to take their business. If you've done your preparation work and are out in the marketplace, you should be able to ramp up appropriately and quickly and finish in the Winner's Circle.

The writer is the director of PT Renoir Consulting Indonesia (www.renoirgroup.com).

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