News | March 19, 2010

Can Creative Supply Chain Management Help You Through The Bad Times? Opportunities And Risks Posed By The Current Recession

The current recession has hit many UK companies badly and whilst our Government assures us that 2010 will see us emerging from recession, we still appear to be facing a gloomy economic picture.

Opportunities
industry experts, have suggested that this is a good time for companies to gain competitive advantage by tightening up the management of their supply chains.

Supply chain managers are achieving cost savings in a variety of different ways including:

  • Cutting excessive inventory Cutting excessive inventory is one very effective way of improving cash flow, a significant amount of money is tied up, for example, by having warehouses full of unsold goods. If you can cut inventory by 12 or 20 days it's a huge improvement of cash flow.

    Inter departmental and inter organisational communication is key to cutting excessive inventory. Whilst the sales department will be keenly aware that sales are dropping, when will this information be communicated to Operations and procurement? If the information flow is slow , they will still be running to forecast. Effective communication across organisations and organisational boundaries, and decisions made on the basis of this shared information requires a level of trust between companies.

  • Taking full advantage of lower costs During the recession the cost of some commodities including oil dropped, sometimes quite dramatically. These price reductions provide opportunities for cost savings, cheaper shipping costs for example.
  • Making budget cuts
    Budget cuts in discretionary spend such as travel and training.
    Postponing non essential projects.
    Freeze in hiring.
    • Increasing payment terms for indirect materials, eg from 47 to 60 days.
    • Enabling faster turnaround of products ie quicker delivery.

The bad news

Bankruptcy of key suppliers – minimizing risk
Many organisations are concerned about the prospect of key suppliers failing and the more farsighted amongst them are taking measures to ensure their continued health. They are doing this in a number of different ways including:

  • Offing earlier payment to suppliers in return for discounts.
  • Monitoring suppliers' businesses more closely.
  • Working with accounts payable to keep tabs on any suppliers that request early payment – one of the warning signs that they may be in trouble.
  • Minimising their exposure to suppliers they think could be headed for trouble, switching business to more stable suppliers.
  • Reducing the number of single-source arrangements and dual-sourcing on key risk areas.
  • Providing direct financial assistance to keep a supplier in business ie buying raw materials for suppliers.
  • Helping smaller suppliers by advising them how to access government assistance money.
  • Acquiring a failing supplier.
  • Engage with suppliers in joint cost-reduction initiatives.

So, we suggest that you use this time to take a step back from your daily activities and look at how you can improve the management of your supply chain to best effect. If you do this now you will have real advantage when things pick back up.

James Brack provides article composition for Qube Vocational Development Ltd http://www.qubevocationaldevelopment.com who is a leading provider of Supply Chain Management NVQs and related Management NVQs in the UK.

SOURCE: Qube Vocational Development Ltd