As lay-offs, redundancies and corporate failures increase, staying in business until the recessionary winds abate is the obvious priority for many companies. But when it comes to supply chain we’re in new and uncharted territory.
In recent years the emphasis has been on aligning the supply chain to consumer demand with analysts and endless white papers extolling the virtues of the “demand chain” The problem now, of course, is that demand has largely been turned off. Two-thirds of people questioned in one recent survey said they would put any spare cash to savings and reducing debt rather than buying more things.
The survey coincided with that report on childhood which argued that parents are so busy earning extra money and indulging themselves that their children are left neglected and parental conscience is assuaged by expensive toys instead.
If the savings culture persists, and if some parents at least decide that spending time with their children is preferable to working to pay the child-minder, then where does that leave an economy built on ever-increasing consumer demand for more stuff? Traditional drivers for hitting the shops – such as moving house – are expected to take some time to recover so Experian’s forecast of one in six UK shops (15 per cent) closing by the end of 2009 looks possible.
Among other things, it means that those clever IT tools for monitoring consumer demand in realtime to give rapid feedback to buying and production could gain in popularity. Interestingly it’s one of the few areas where IT investment is currently continuing – if the press releases about new contract wins that still trickle into my inbox are to be believed. Typically the fulsome client quotes justifying such investments talk of “improved forecasting” or “earlier and more accurate forward visibility” – both vital attributes in times of widely fluctuating consumer demand and essential for spotting those much heralded “green shoots” when spending does pick up.
Demand monitoring is only the start: that data can be ploughed back into other supply chain activities such as warehouse space needs and vehicle scheduling. Analysts have been talking about the need for more flexibility here effectively supply chain planning on the fly – for years. Some used to suggest that flexibility should be such that a truck en route to one supermarket might be diverted to another if word came in that a crucial out-of-stock had suddenly occurred. During the boom years such concepts generally fell on deaf ears: if the supply chain was not quite as efficient or as cost-effective as it might have been then why worry? The profits still kept rolling in. Today it’s different and more flexible and adaptable working practices may well be essential attributes to staying in business.
While a finger on the demand pulse is essential, so too is cutting costs – which is another clear theme in the current round of announcements and white papers. Some IT vendors are combating the current downturn by promoting managed services as a cost-effective solution. If switching to managed services can produce 72 per cent savings in a company’s B2B IT expenses, as a white paper from GXS claims, then it’s obviously going to be something that many will consider.
The GXS white paper focuses on total cost of ownership in managing B2B programmes, taking into account not just hardware, software and infrastructure, but such things as staff time, training – both internal and for trading partners, change management, programme management and operational expenses. On these calculations, in real life examples, savings over three years are said to hit £2 million or more. For any company looking to cut costs and debts those sorts of numbers will look tempting.
It is, however a far cry from the rationale for outsourcing of a few years back: then – the experts advised – it was quite wrong to look on the outsourced option as a means of cutting costs, rather it was a tactic for ensuring the most up-to-date software, reducing risk, circumventing a skills shortage or many other worthy reasons. How times change.
As the recession bites, more will no doubt want to focus on core activities, adding such options as software-as-a-service applications and various collaborative initiatives to the usual outsourced activities. And if “on the fly” flexibility really does prove vital for tomorrow’s supply chains, as they struggle to react to the vagaries of consumer demand, it may well be that few corporates will have the enthusiasm or in-house expertise to deliver such sophisticated services.