5 Strategies for Better Supply Chain Management in the Current Economy
By Stephen Slade on Jul 29, 2010
By Maha Muzumdar - published in APICS Extra, July 2010 edition
The past several years have been marked by increasing economic volatility, as reflected by not only the global economic recession, but also the instability of customer demand and rapid movement in raw material, fuel, and commodity prices. Supply chain executives are under pressure to develop more efficient, customer-centric supply chains and find innovative ways to reduce costs. Meanwhile, they are being asked to take advantage of business opportunities that may arise from the current economic conditions.
As a result, company leaders are prioritizing projects that reduce inventory and logistics expense. Although this may help matters in the short term, professionals risk ignoring the long term. Organizations must prepare for the rebound while responding to the conditions of the new normal--a reduced labor pool, stagflation and deflation, and issues surrounding energy and sustainability. Effective strategies coupled with a well-defined plan and the right tools will help alleviate pressure today and ready managers for market changes in the future.
Strategy 1: Adopt demand-driven planning based on real-time demand insights and demand shaping. The right prediction and contingency planning tools will ensure a complete view and an effective response to risks such as suppliers going out of business, political upheaval, and natural calamities affecting manufacturing. Companies then can adjust pricing and promotions strategies to shape demand, move additional product quickly, drive revenue growth, or further expand margins for a high-demand product with limited market supply. The key is to have the foresight to leverage opportunities and mitigate challenging events so that your business not only survives, but succeeds.
Strategy 2: Build an adaptive supply chain with rapid planning and integrated execution. Once executives are able to better predict demand and risk, they need to adapt their supply chains to changing market opportunities and events. Companies must put in place dynamic planning and continually fine-tune operations. The old model was to wait until the end of the month or quarter to shift production and supply based on shipments and sales. The new model calls for more continuous, dynamic supply chain adjustments to rapidly respond to market changes. This can minimize or even eliminate shocks across the supply network. The results include better visibility; enhanced collaboration across the value chain, including sourcing and supply, manufacturing, transportation, warehousing, and distribution; and accelerated decision-making with better analytics and support.
Strategy 3: Optimize product designs for supply, manufacturing, and sustainability in order to accelerate profitable innovation. Innovation is crucial to being one step ahead of the competition. But innovation doesn't exist in a vacuum. In order to be successful, products must be manufactured at the right cost. Decisions made in the early cycles of product development can make or break the product. Designs must be optimized for supply and manufacturability, and all the true costs must be accurately captured. In addition, product innovation and competitive advantage increasingly stem from the selection of suppliers and technologies. If a company can manage the information, people, processes, and decisions regarding a product throughout its life cycle, it can achieve strong dividends and market leadership.
Strategy 4: Align your supply chain with business goals by connecting sales and operations planning (S&OP) with corporate business planning. Although S&OP processes provide coordination among sales, manufacturing, and distribution, there still are disconnects and gaps among finance, strategy, and operations in many companies. One way to bridge these gaps is with integrated business planning. This process integrates financial strategic budgeting and forecasting systems with operations planning. The resulting marriage of processes ensures revenue goals and budgets developed in finance are validated against a detailed, bottoms-up operating plan. Concurrently, the strategy reconciles the operating plan against financial goals. Integrated business planning, which connects S&OP processes with corporate business planning, enables companies to achieve the right balance of supply and demand, aligned with strategic business goals. It provides real-time visibility to all the key dimensions for success--demand, supply, product, risk, and performance--across the organization and throughout the extended supply chain.
Strategy 5: Embed sustainability into supply chain operations. The triple bottom line of people, profit, and planet has never been more important than it is today. Studies show that companies striving for social and environmental sustainability achieve major competitive advantages, especially with regard to production efficiency, supplier management skills, and attractiveness to employees. Substantial opportunities exist for sustainability in supply chain operations:
- Company leaders first need to include sustainability as a core component of their supply chain strategy. This means incorporating it as a key requirement across all supply chain processes.
- Second, professionals initially should focus on the basics to achieve quick wins through real-time visibility to energy and resource consumption and resource or material movement. This enables reduction of carbon inefficiencies, minimized energy consumption, less waste with "recycle-reuse-refurbish" materials, and optimized travel and transportation.
- Businesses can keep the momentum by ensuring continuous improvement through systemic measurement, audit, and knowledge management. Compliance audits, best practices, and benchmarks provide a governing framework for sustainable supply chain operations and ensure clarity around the environmental impact of specific actions.
The right processes, practices, and tools can help
The demands on supply chain managers to rapidly respond to change and increase profitability are greater than ever. The good news is that effective strategies and solutions exist that support each one of the previous five strategies, and they can deliver immediate return on investment. The way in which companies implement these strategies can mean the difference between success and failure.