Doctor's Note (December): A Year Like No Other

For most organizations, 2009 was a challenging year. But challenges bring out the best in organizations with a mission and a purpose. As in other years, we saw many of our clients adapt to the current conditions and react to opportunities.

When faced with a drastic reduction in sales, one of our clients reduced inventory, freed up cash, and bought back some of its debt at a discount. This proactive use of its supply chain “organizational knowledge” allowed it to substantially mitigate the effect of the drop off in sales.

Another of our users took advantage of the slowdown to increase market share. While its competitors focused on reducing costs, it extended terms and increased parts of its supply capability to grab market share, and now sits in a commanding market position.

The companies that demonstrated agility were the ones that already had a supply chain planning infrastructure in place. They had invested in the software, processes, and training for many years. They had the metrics in place and the capability to recognize and exploit opportunities. In other words, they had invested in supply chain organizational knowledge.

Improvements in supply chain planning are not isolated events. There is no single bullet that is going to make things dramatically more efficient. The fundamental issue in supply chain planning is how to deal with uncertainty and changes to the environment in a consistent and cost effective way. This requires up to date information, people with the right skill level to use the information, the tools to support them, and the management savvy to recognize that uncertainty is best handled by people and not by computers. None of this can be accomplished without a significant and consistent long term effort.

Supply Chain Consultants has offered software and services from the beginning. Software without the help to use it stays on the shelf and consulting without the software to institutionalize changes is a temporary event. Our core belief is that to improve supply chain planning, you have to do a hundred different things – each of which is a combination of software and practices.

Dealing with promotions in a CPG company is a good example. While it would be ideal for all planned promotions to occur when they are planned, invariably promotions get advanced or delayed depending on a host of factors. You can optimize the resource planning and demand forecasting all you want, but at the end of the day there will be surprises. In fact as retail consolidation continues, the surprise will be more and more significant because each retailer constitutes a larger fraction of demand.

Supply chain efficiencies are gained not just by planning the promotion, but by managing the changes cost effectively. This means that the planners must have the ability to recognize changes quickly, to isolate these changes and identify options, to evaluate the options for cost, and to implement the appropriate option. Every change is a little different. While you cannot automate each and every response, you ought to be able to put in place processes that are repeatable for dealing with changes – much as S&OP is a repeatable process for dealing with changes to tactical planning.

Those companies that have invested in their supply chain planning will be the ones best positioned to benefit from the recovery in 2010.