The current recession has been a testing time for large and small corporations alike. It has, however, been preceded by one of the most optimistic times in recent history and such was the positive atmosphere till 2007 that there was an emerging body of thought that was willing to label recessions a thing of the past.
And yet, the impact of the last meltdown was not so far back in the past. Surely, successful organisations would have absorbed the lessons from previous recessions into the very fabric of their supply chains and would be well prepared for the current meltdown. This was the starting hypothesis for our research.
If there’s one thing that was conspicuous after the tech-bubble slowdown, it was that a large number of corporations, across business sectors had spent an inordinate amount of time, focus and resources on surviving the slowdown – effectively under investing in being prepared for the upswing following the meltdown. Both manufacturing and services firms found themselves ill-equipped when the tide turned and a fair proportion of failures to either survive the downturn or capitalise on the upswing were expectedly attributed to weaknesses in supply chain links. There are five key areas where companies should be building capabilities:
CONTROL: In recessionary times, very often the natural tendency for organisations is to turn inward-looking, focus on protecting themselves and limit the amount of information they share with their supply chain partners. Our research showed on the other hand that winning firms had systems and processes already in place which allowed for an uninterrupted and sometimes increased level of information sharing during recessionary times. In fact, as one would expect, the sharp demand fluctuations that occur during recessions warrant a more integrated organisation (across supply chain entities) that seeks to minimise the bull-whip effect, thus eliminating inefficiencies and balancing supply and demand effectively.
RISK MANAGEMENT: There is no other way to spell it out. Winning firms take contingency planning seriously. Whenever risk management is “de-prioritised” – particularly forward-looking scenario planning – the results during recessionary times can be catastrophic.
Companies had different levels of preparedness for today’s difficult economic situation. Some had taken advantage of the economic peak times to prepare their operations for the typical downturn – “Cost efficiency programmes were already on the way and current climate only supports this”. However, some of the responses also stress the challenge of the true globalisation in supply chain operations: “We have complex supply chains which make it difficult to adopt quickly in the short run. But in some cases we have been able to react fast to adjust to current market conditions.”
CONTRACTS: In times of crisis, what the best prepared companies found most helpful was having long-standing (mature) trusting relationships – with an emphasis on a more collaborative and a less transactional style of management.
Contracts with key partners for winning firms also were not one-sided from a reward perspective. Most winning firms had clearly identified the critical players within their supply chains and ensured that these relationships were kept on sound and balanced footing through the use of proper incentives.
CO-OPERATION: Winning firms work in close collaboration with their supply chain partners. In our research we found that winning firms were willing to provide financial support if required to their key partners, usually in the form of renegotiated contracts. Also, these firms were of the opinion that information sharing (especially customer demand information and product pipeline information) not only avoids the bull-whip effect, it also demonstrates that the firm is willing to build a longer-term relationship with its partners. In other words – information sharing is one key step towards trust building; a vital ingredient of successful supply chains.
ETHICS: Lastly, when asked to rank the most important considerations for their supply chains during the current crisis, winning firms clearly indicated their preference for economic and ethical considerations, ie the manner in which firms engage with their partners is as important for their supply chains as the economic relationship.
In summary, to best prepare your firm’s supply chain to both survive a recession and emerge strong after it, focus on the following five characteristics:
active commitment and collaboration with supply chain partners, visibly flowing down from senior levels of the organisation.
more effective control through increased information sharing rather than less.
an unwavering (daily) focus on all aspects of contingency/scenario planning.
recognition of the importance of developing trusting relationships (ethics) as opposed to a focus solely on transactional legal/economic contracts.
and build the capability to foster deeper collaboration with supply chain partners.
Only The Collaborative Will Survive, is the end product of a project by OBA working in collaboration with London Business School.