Supply Chain Management Blog : Downturn

Should Manufacturing Companies move to the Cloud?

christianverstraete — Thu, 28 May 2009 07:13:00 GMT

As already stated in earlier entries, the Cloud started with Web 2.0 and the Social Networking phenomena. Since, it has taken a life of its own, and is attracting many SMB's (Small and Medium Businesses) allowing them to fully rely on a cloud provider...(read more)

The downturn, source of new opportunities

christianverstraete — Sat, 15 Nov 2008 15:41:00 GMT

I am not forgetting my promise to continue discussing HP's Supply Chain Initiatives, and I am actually working on the next post, but as I had the opportunity to speak at two conferences this week, I want to share with you some of my observations.

Thursday, I spoke at JDA Connect 2008, JDA Software's yearly European conference. The topic given to me was about making the Supply Chain more responsive. Obviously with the current volatility in the financial and commodity markets, how to adapt in the downturn was central to my talk. Actually it was central to many of the presentations.

Friday I spoke at IBF's Supply Chain Forecasting & Planning conference, addressing more thoroughly what is required to approach a downturn.

In both cases, I started with a diagram showing the evolution of the volatility of the Dow Jones industrial Average over the last couple months. The central question is how to improve the supply chain responsiveness at an acceptable cost level. The economical evolution being difficult to predict at this point in time, production quantities need to grow or shrink quickly, while safety buffers should be kept to a minimum due to their intrinsic cost. Four elements are required to achieve this:

Understanding what is happening in the Supply Chain is a prerequisite. Knowing the available inventories of components, ingredients and finished products, the production capacities available, alternative sources of supply, etc. allows understanding the upwards potential of the Supply Chain, while understanding variability (highest and lowest limit) at all nodes provide precious information on the flexibility, adaptability and responsiveness.
To achieve this visibility, all key partners in the Supply Chain need to share essential data. This requires a collaborative attitude, which can only be achieved if all parties understand the benefits they will gain from sharing that information. The role of procurement is essential here. In many companies it is the traditional and adversarial approach taken by procurement that limits the sharing of vital information.
The current downturn is quick and deep. It will affect many companies in the marketplace. Could some of your partners be affected? Rothstein Associates highlight in their Business Survival blog, a message from Marsh warning that the economic slowdown will increase companies' supply chain exposures. They advise companies to assess their supply chains and identify ways to mitigate risk. Combining visibility (to understand what happens) with risk mitigation and response planning (using methodologies such as scenario planning), helps companies assess their exposure an plan how to reduce it.
We already spoke about the need for increased flexibility and responsiveness. This does not only require an understanding of what happens in the Supply Chain in real time, which is what visibility gives you, but also the identification of how the Supply Chain interacts. Through the analysis of the behavior of the system over longer periods of time (using the data collected over multiple months), one can identify the key parameters of the eco-system and establish a model. Using simulation tools, it is then possible to submit the supply chain to a number of scenarios and identify how exposure can be reduced on the one hand, and where flexibility can be increased on the other.

By including the above elements in the supply chain, its responsiveness can truly be improved. And this provides opportunities. Indeed, by being able to respond faster to customer demand that market shares can be increased. And this can even be done in a downturn.

In my presentations I used an analogy. Let me share it with you here. Two people are walking in the savannah and one of them spots a tiger in the distance. He warns the other, but to his astonishment, sees him kneeling down to put his running shoes on. He tells him, "You know these shoes will not allow you to run faster than the tiger". The other one answer: "I do not need to run faster than the tiger, I only need to run faster than you."

Well similarly, your eco-system does not need to run faster than the tiger, it needs to run faster than its competition. Several conference attendees actually came back to me telling me they really liked this mindset and some even pointed out their management was thinking in the same way. Hope they are not your competitors.

If you liked this post and can spare five minutes, please answer the following survey on "The Supply Chain in the Downturn". I will use the results for a future blog post. Many thanks in advance.

Global Supply Chains and a Downturn

christianverstraete — Wed, 03 Sep 2008 08:40:00 GMT

Last week I was in Kuala Lumpur and Singapore and had the opportunity to present to several CIO's on the subject of how to manage a global Supply Chain through a downturn. I know, a number of you may start argue whether we are in a downturn or not, but that was not the objective of my talk. I started out by highlighting three objectives that most companies have today, reducing costs, increase revenues (which in a downturn means taking market share away from the competition) and mitigating risk.

As Martin Christopher from Cranfield pointed out a number of years ago, "Companies are no longer competing with companies, but supply chains with supply chains", it is important to look at the end-to-end supply chain to address those three objectives. Companies need four key elements to truly operate at a supply chain level; these are visibility, responsiveness, collaboration, and risk management. I'd like to address these points in a series of blogs I hope to post over the next couple weeks, but before that I'd like to emphasis the importance of operating as an integrated supply chain.

Let me take a practical example. The Japanese invented the concept of "lean", and worked a lot at making their factories and operations lean. But in their traditional, collaborative manner, they worked at the same time to help their suppliers and partners to also become lean. As a result of this, although each company was focused on its operations, the whole supply chain quickly became lean. This is one of the key reasons of the success of companies such as Toyota and others.

European and American companies have taken a different approach. Yes they have been working hard at making their factories and operations lean, but they often have done that by pushing the "waste" up and down the supply chain. Unfortunately, the end consumer has to pay for the waste, regardless of where that waste is along the supply chain. Unfortunately, because they neither have the close relationships with their suppliers, nor the visibility of what happens across the supply chain, they often do not spot the problem, while asking themselves why they cannot make a given product at the same price point as their Japanese counterparts.

I used this argument to open my presentation and was actually surprised how much agreement I got from the audience. To me this sounds obvious, but it seems many companies have not thought about it, nor have they looked at how they could address the issue and improve their competitiveness.

In the next post I will discuss the importance of a win-win collaboration for the success of the relationship.