UnitedLog asked Logipi to interview supply chain thought leaders from around the world to hear their views on how the recession has impacted supply chain management. They asked 4 questions to these supply chain professionals, the following is a summary of one of these questions:

 What are the consequences of the recession regarding supply chain management and innovation?

The Positive-opportunities to innovate

Many people such as Patricia Moser see the recession as an opportunity to make positive and profitable changes to the supply chain.  Chris Russell says the recession drives innovation. It creates scarcity, pressure, and compelling events that force people to innovate—innovate or die, right?  According to John Charnovich, a lot of supply chains tend to operate and run well when things are going real smooth, but when things change rapidly, they struggle. There has been an increase in motivation to innovate due to these changes. Many believe that coming out of this slow-down, we’re going to see a lot more innovation, a lot more improvements and enhancements to supply chains in general.  Furthermore, David Ryan reminds us that it’s also important to know that not all companies experience dire consequences in this downturn. Many did, there was a liquidity crunch and retail and wholesale financing dried up, some had reduced profitability, and many had reduced cash generation, but there are also some that actually improved.

David explains further that now is precisely the time when supply chain initiatives probably have the greatest impact. Companies will actually continue to pursue innovation and supply chain initiatives because they will perceive it as an opportunity to mitigate the circumstances associated with an economic downturn or an economic cycle. In other words, they’ll be using supply chain to reduce lead times, inventory requirements, working capital investment, and to free up cash. And the important thing about this is that it applies to the entire chain, and it’s really not a win-lose kind of a proposition. If it’s properly implemented, a progressive company will understand it’s going to help everyone from raw material, freight forwarders, freight carriers, all the way through to the end customer. It’s going to become more efficient and better positioned to deal with tough economic times.

The Negative – reduced budgets and increased volatility

Others such as Paula Rosenblum sees things as business as usual, just a lot less of it. We will have to learn to live within our means and to keep growth in check, being cautious about leveraging our assets. Cheap money turned into no money very quickly. A negative consequence for the USA is that it has become a debtor nation and no longer controls its destiny.  John Charnovich says that due to the recession, globalization, and oil prices, we have seen a decline in logistics costs. However, because of the job losses and increased unemployment, we have seen more protectionism and less off-shoring. 

Mike Star points out that we have seen companies really cut back on technology and innovation investments. A lot of the projects that were funded, and a lot of the good innovations that were planned for 2009 have just simply been put on hold.  Rakesh Parimi believes that limited innovation has come to the rescue of the recession. Good ideas are getting killed due to lack of funding. The fundamental reason is that in a recession everyone and every company including governments are trying to survive. However, all is not lost. The very good ideas will get realized soon after the recession sees an upswing.

David Schneider says that many supply chain managers have not been focusing necessarily on innovation that would involve systems, but rather are concerned with cost reduction. Innovation has become focused on cutting operations costs, either with existing tools or by taking that activity and putting it into the hands of a third party, letting the third party be the innovator.  As Dylan Persaud points out, companies will be looking at what they currently have and will be trying to maximize their current investment. This is the adage of doing more with less. By examining current operational capabilities organizations will scrutinize the business value of each operation and interaction to assess whether it provides value, if it is inefficient and the actual costs of the operation to the organization.  Cheryl Berklich says that indiscriminate spending is a thing of the past. However, organizations and people are spending more time recognizing the value of relationships. Many are willing to pay a premium to maintain relationships with external suppliers for example. Yet, in order to manage their costs, they are cutting spending in training and development of their own employees.

Specifically in terms of supply chain, one of the other things that has changed—is an assumption of some sort of long-term stability. We seem to have much more frequent and more violent business cycles now. So, that assumption of stability in your long-term planning, your strategic planning, probably needs to be replaced by some new form of resilient risk management approach that takes into effect what’s going on in reality. Chris Russell asks us to look at the cycle over the last 12 months, specifically to supply chain, starting the end of last summer. In calendar Q3, we had the fuel prices go up through the roof. On the heels of that we had fuel prices going up. As a result, transportation costs went up. This resulted in companies redoing all their outsourcing and shipping assumptions. Then right on the heels of that, in the end of December, demand fell off by forty percent with some companies. Throughout Q1 and Q2 companies went into cost cutting and trimming and sitting on their cash mode. Now we are starting to see signs of recovery and growth, and that’s creating a problem because these companies have done cost cutting and inventory cutting and capacity cutting; now they have a shortage of stock, they have a shortage of capacity, and they’re saying, ‘Okay, how do I manage this market if it does grow?’

The lesson learned here is that companies going forward have to become good at managing that cycle so that they don’t get caught by surprise and have big piles of inventory or lack of capacity when they come out of it. Everybody seems to follow the same cycle. As managers and leaders, we should know that these cycles are not hundred-year cycles; it’s something that happens every five to ten years, so we should know better than to manage those cycles so inefficiently. We will continue to see a very volatile future. One of those things we need to get good at is planning and executing in that volatility.

Read on > What improvements, good consequences and lessons learned do you see? How are we better off? >
 

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