Supply Chain Leaders Face Tricky Savings, Risk Balance
by Patrick Cataldo
To paraphrase a bit of Central Pennsylvania wisdom, even a blind squirrel will find an acorn if he roots around long enough.
These days, when we're looking for good economic news, we may feel like the poor squirrel. No matter where you look, it's hard to find much to cheer about. What I hear from many business leaders is simple and direct: They're looking to trim or cut expenses and conserve cash.
When sales are not growing, businesses have no choice but to cut expenses.
One surprising development—one that is not being well reported—is how many of today's company leaders are looking to gain more cost leverage from their supply chains.
These are the step-by-step processes that cost real money. It's all about how they have to pay to source, make and deliver products to you and me—the end consumers.
A December 2008 report, published by PricewaterhouseCoopers, noted that problems with a company's supply chain can drive the stock price lower.
After analyzing 600 companies, PricewaterhouseCoopers found that the market was quick to punish companies, by 9 percent on average, that reported supply chain disruptions. They also found that companies don't recover quickly from this situation.
Supply chains have become more complex, highly dispersed, and in some cases very fragile. The global nature of business is far reaching with many companies now sourcing parts and products internationally. This can cause issues with foreign vendors that delay production. The PricewaterhouseCoopers report highlights that companies are aware that extended global supply chains are vulnerable to risks, especially product safety, which was rated by companies as a primary concern.
Leading companies see their supply chain as a source of competitive advantage. However, during difficult financial times, making additional investments to improve them, while still a good idea, is a tough sell.
Supply chain leaders are being challenged to ensure they keep a delicate balance between operational savings and risk to avoid any adverse shareholder impact or damage to their organizational reputation.
So how are companies striking that supply chain balance? I’ve been asking them.
Over the past few months, I've conducted a series of 24 individual interviews with top supply chain executives from companies like A.C. Moore Arts and Crafts, Adtran, CKE Restaurants (home of the Carl’s Jr. and Hardee brands), Harris, Just Born (Peanut Chews, Peeps, Hot Tamales), Nash Finch, Northrop Grumman, Office Depot, OfficeMax, Polo Ralph Lauren,Standard Textile, Steak'n Shake, SYSCO, and others.
The major issues identified can be placed into four main areas:
- Forecasting product demand to avoid supply chain disruptions
- Dealing with overall cost issues (inventories, transportation, fuel, etc.)
- Working closely with suppliers to ensure long-term relationships.
- Talent management—recruiting, developing and maintaining top supply chain professionals
None of this came as a surprise to John J. Coyle, Smeal professor emeritus of supply and information systems and a recognized pioneer in the field.
"Supply chain expenditures in many organizations are a large expense, but when managed effectively, supply chains not only contribute to lower costs but also increase sales revenue and improve cash flows. As a result, effective and efficient supply chains can help improve the return on assets and shareholder value."
Business executives are being called upon to transform their supply chains in turbulent times to benefit customers and shareholders and Coyle continues to work with supply chain leaders through executive education programs that connect the supply chain to the boardroom.
As we move forward in 2009, we'll do so with the knowledge that supply chain professionals will be doing all they can to continue our flow of goods while controlling global costs to avoid any disruptions. Doing any less can, and probably will, have negative consequences.
This article originally appeared in the Centre Daily Times.