Wednesday 14th Aug 2019 - Logistics & Supply Chain

Recession is forcing rethink of supply chain strategies

Some supply chain executives are questioning recent outsourcing decisions and “in-sourcing” selected activities, according to a new survey PRTM conducted following the collapse of the credit markets.

This trend is most widely reported by companies in the automotive sector, where 27 per cent of companies surveyed plan to in-source activities to tighten control over supply chain performance.

The survey also highlights the fact that improving cash flow and working capital has become an urgent priority. The impact of the recession on global organisations’ supply chains has been massive and hard-hitting, the survey said. And, although many top-line priorities remain the same, a new priority—improving cash flow and working capital—has emerged as urgent.

The findings are being released in PRTM’s Global Supply Chain Trends 2008–2010: Extended Edition. The new edition illustrates how organisation are addressing the economic crisis in the context of their supply chains, contrasting these results with those from a similar study released by the firm one year ago.

Gordon Colborn, pictured, director of PRTM’s Global Supply Chain Innovation practice, said: “The global economic crisis has put global supply chain networks to the test. Faced with increasingly unpredictable demand and tighter requirements from lenders, companies are forced to look at all activities through the lens of liquidity. For many, this means reducing inventory, and increasing collaboration with, and even financially supporting, their key suppliers.”

While some companies are looking at their outsourcing policies, others are sharply increasing focus on supply chain flexibility. Defined as the ability to maintain cost-effective delivery capabilities in times of unscheduled and large demand fluctuations, supply chain flexibility is still considered the most critical success factor for supply chains worldwide.

“The recession has sharply degraded the reliability of demand and supply forecasts beyond a three-month window. This explains why more than half the participants say that supply chain flexibility is even more critical than just six months ago,” said Colborn.

Many are redesigning their Sales & Operations Planning (S&OP) processes and embarking on initiatives to reduce product complexity as a result.

Colborn said he was surprised that only 29 per cent of firms were pursuing value-added services as a way to increase revenue, protect margins and set themselves up for future growth. “Many are just hunkering down, postponing new equipment purchases and selling off inventory. There is a huge opportunity for those who take an innovative approach to bundling products with services that appeal to customers, even in these hard times.”

The survey also found that 60 per cent of survey respondents plan to redesign their S&OP processes to help them get through the recession; 45 per cent will increase internal and external collaboration efforts; 41 per cent will accelerate cost and complexity reduction efforts.

Reducing supplier risk was another priority. Some 75 per cent of participants say they have recently helped at-risk suppliers to ensure deliveries; 67 per cent are using new risk-analysis tools to spot threatened suppliers early; 45 per cent say they have provided financial support to suppliers in the form of revised payment terms or risk financing.

Inventory reduction was the main focus for increasing cash flow, according to 74 per cent of those surveyed.

The new survey results and analysis reflect the views of more than 75 global manufacturing and service companies. PRTM surveyed the respondents between April and May 2009, and contrasted the responses with those of more than 300 global executives who participated in PRTM’s Global Supply Chain Trends 2008–2010 original study, released in May 2008.

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