Managing supply chains in a fragile environment

Gerard Chick and I had a good chat over skype this morning, and we both started jotting down a few facts….

Banks are buying up gold and moving currency out since 2009.  A friend suggests that the banks feel it is very unstable out there, and are hoping for some stability.  But the dollar, the pound, and the euro are all over the map, and the future of the euro is still very much up in the air.

A friend working at a large third party logistics company noted how demand is very soft.  A major provider of apparel is seeking to bypass 3PL in the hopes of taking out costs, but are in fact being bypassed themselves by the retailer.

Regulators are pressing financial services to drive audits of their key suppliers, and have lost their confidence in their ability to manage the intellectual property they have outsourced to third parties.

A large global manufacturing company has frozen their travel budgets due to concerns over revenue.

Are these really signs of growth?  Perhaps this is indeed the new normal.  Maybe the challenge is now about understanding the nature of fragility.  For supply chain executives, there is a need to recognize that this may indeed be the new normal.  The goal for executives in this environment may indeed be just to preserve revenue through assurance of supply, and managing complex cost reduction.  The latter is about managing intellectual assets in such a way to drive cost in a different way – you pay a bit more so the line doesn’t go down for six weeks.  You work with the supplier to take out leadtime in the supply chain and reduce working capital.  You pay more for a supplier to drive productivity improvements in the facility and minimize downtime.  That is really the next new challenge.

Old risk was like driving down a foggy road, going slowly, looking for the center line.  New risk is like walking a tightrope.  Eventually the fog goes away or you get home in the first case.  In the second case, the consequences are much higher – and so people are much more careful.

Gerard talks about managing the tail – the stuff you have to do that is the normal procurement stuff that has to get done.  But the gain line is everything beyond understanding TCO.  This includes demand management – looking to the future, and how might we do this.  Instead of counting money spent, consider how to better spend money in the future.  This gets to the real pure parts of being lean and agile, and working with a local number of suppliers to drive innovation, rather than offshoring.  Using a two by two matrix to classify everything isn’t the solution – the real benefits will be driven by those who can accurately think about the value chain, collaborate with those along the way, including the stakeholder, and establish the right relationships along the way.