If anything good has come out of the current economic turmoil, it is that it has been a robust test for our supply chain systems and processes. In some cases it has shone a light on those elements that we assumed were OK but in fact are underperforming. Companies have done all sorts of things in the name of business improvement over the past ten years or so – from implementing new software to introducing lean manufacturing or Six Sigma – but they haven’t necessarily got the benefit or return on investment they should have.
In good times, they’ve been getting away with sub-standard supply chain processes, because those processes haven’t been stressed to the max; predictable demand covers a multitude of sins. Now that demand is volatile and unpredictability abounds, the chickens are coming home to roost and weaknesses are being exposed – companies are finding themselves with too much inventory, insufficient working capital and poor demand accuracy.
To borrow from W Edwards Deming’s theory of management, now is the time to optimise the whole.
That isn’t about spending vast amounts of money: the solution isn’t to invest in yet another expensive suite of software; the solution is getting better payback from the investments you’ve already made. It means looking at where your processes are broken, improving them and then optimising them as a whole. A small investment now can bring significant ROI in less than a year, in terms of cost reduction and profit – not to mention survival.
Now is the time to take a fresh look at just how good we really are at planning and managing the supply chain; both in the short term and over the extended horizon. Let’s look at why our lean manufacturing facility isn’t actually being lean because it’s being let down by elements of supply planning; let’s look at why our (poor) planning techniques are preventing us from producing the optimum plan for manufacturing and so on.
Working capital is a classic symptom of sub-standard process performance. If working capital had been under control as they believed, then some companies wouldn’t be experiencing the sudden shortfall that they are now. The problem has merely been revealed as a result of processes under stress.
Equally, there is a renewed focus in demand planning because organisations are recognising that their forecasting process has been over-reliant on historical data. Now much of that historical data has been wiped out by recent events, this type of If working capital had been under control then some companies wouldn’t be
experiencing the sudden shortfall that they are now.statistical forecasting is impossible. Companies are having to revert to a forecasting process where history is only a small component, and assumptions and plans about the future, are by far the biggest element – this is true demand planning.
For some businesses, these issues need a rapid solution for them just to survive. And while quick fixes are not the answer in their own right, they can become the start of a journey of improvement that is sustainable in the long term. So the benefit of exposing a raw area is that it brings in to sharp focus the need and the place to start – the symptom has revealed itself but it is also revealing the underlying problem; the one you really need to fix. So let’s start from where we are; get the rapid results we need to ride out this difficult period, but also use it as a base on which to build for the future.
Organisations which have already started to focus on optimising the whole, will be better positioned to take advantage when demand improves again, bringing a reverse of the situation they have just gone through. It will be important for those companies, which have had to strip out capacity, to see the upturn coming because it will probably take six months or more for them to get back to improving output. Missing the downturn is one thing but not meeting volume on the upturn will surely just play into the hands of competitors. When it comes (next year or the one after that), the recovery will require a supply chain that is under control, flexible and responsive. It isn’t too late to start, but those companies which don’t react by preparing for the future now, will miss the opportunity when things start to pick up again.
Les Brookes is CEO of Oliver Wight EAME