Doctor's Note (September): Positioning the Recovery

The worst is over. The latest Labor Department statistics show a 6 percent increase in productivity. Much of it is due to the decrease in real wages and benefits. This is normal at the bottom of a cycle when companies have completed the layoffs and furloughs and are operating with their belts tightened. Economists are no longer arguing about how deep the recession will be, but whether the growth will be consumer driven or investment driven.

At the individual company level, macroeconomic arguments are best left to the economists. The biggest opportunity for an individual company is how to take advantage of the improved climate. By far the biggest opportunity at this time is market share. All companies have reduced their inventories, shut down plants and slowed production. The company that is first in servicing any increased demand has the opportunity of winning market share from its competitors.

During the down cycle, the emphasis was rightly on retaining customers by extending terms, increasing service for long term customers, and reducing costs by limiting production and inventory. Agile supply chains ought to switch their emphasis to servicing new customers and judiciously priming the pump with inventory. As the owner of a used car lot once said, “If you don’t have it, you can’t sell it”.

Most companies wait too long before reacting to increased economic activity. Many wait until the supply tightens to the point where customer service suffers. This is an invitation for competitors to move in to take their market share. To prevent this, the supply chain professional can do a few simple things:

1. Modify the supply chain metrics to focus on early indicators that point to increased demand. These include open order line items, customer lead times, percentage of cancelled or delayed orders, etc. The earlier that you know something has changed, the more time you have to react to it.

2. Devise a tactical sales campaign with the sales organization and target the competitors’ customers. Remember, all companies are uncertain when the recovery is going to happen. Willingness to position inventory at the customer’s site in case it is needed in the short term has helped some companies win business.

3. Judiciously examine the inventory targets so that you can respond quickly. Often this is best done by positioning purchased parts and raw materials.