04 SCS:VIEWPOINT JULY/AUGUST 2009 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
ANALYSIS
Supplier liquidity
challenge to
supply chains
New research shows that global
companies are increasingly moving to
support suppliers and safeguard their
supply chains.
Supporting suppliers has become a critical supply
chain issue for many global companies, according
to a new study by consultants PRTM.
Global Supply Chain Trends 2008-2010: Extended
Edition found that 75 per cent of participants say
they have recently helped at-risk suppliers to
ensure deliveries; 67 per cent are using new risk
analysis tools to spot threatened suppliers early; 45
per cent say they have provided financial support
to suppliers in the form of revised payment terms
or risk financing.
“The global economic crisis has put global
supply chain networks to the test. Faced with
increasingly unpredictable demand and tighter
requirements from lenders, companies are forced
to look at all activities through the lens of liquidity.
For many, this means reducing inventory, and
increasing collaboration with, and even financially
supporting, their key suppliers,” says Gordon
Colborn, director of PRTM’s Global Supply Chain
STRATEGY
Time to optimise
the whole
A small investment now
can bring a significant
return on investment in
less than a year, says
LES BROOKES
If anything good has come out of the current
economic turmoil, it is that it has been a robust test
for our supply chain systems and processes. In
some cases it has shone a light on those elements
that we assumed were OK but in fact are
underperforming. Companies have done all sorts of
things in the name of business improvement over
the past ten years or so – from implementing new
software to introducing lean manufacturing or Six
Sigma – but they haven’t necessarily got the
benefit or return on investment they should have.
In good times, they’ve been getting away with substandard
supply chain processes, because those
processes haven’t been stressed to the max;
Innovation practice.
Colborn admits to being a little surprised at the
extent to which companies say they are supporting
suppliers to maintaining liquidity. “Many said they
were helping ‘at risk’ suppliers by providing financial
support either through revised terms or risk
financing,” he says.
Risk in the supply chain is often talked about, but
Colborn points out that in the past it has not been
as critical as it is now and companies are having to
re-examine long-held perspectives.
The trend over the past few years has been
towards lean supply chains often with single
sourcing and JIT delivery systems at the same time
as rapid globalisation. Companies are now having
to reassess these systems and consider the
possibility that they might have gone too far.
“Risk assessment and mitigation are now top of
the agenda,” he says. “Global companies can’t afford
to have key suppliers go under. This is a major risk
to supply chains.”
Companies are responding to this in the short
term by working to understand risks in the
supplier base better so that problems can be
identified more effectively and dealt with before
they lead to a crisis.
Colborn also points out that the problems don’t
go away when the economy starts to improve. In
fact, he warns, the level of risk could increase
because suppliers weakened by the recession will
need more working capital to meet the growth in
demand and they could simply run out of cash.
In the longer term, Colborn believes risk will
become a new area of focus, another measure of
predictable demand covers a multitude of sins. Now
that demand is volatile and unpredictability abounds,
the chickens are coming home to roost and
weaknesses are being exposed – companies are
finding themselves with too much inventory,
insufficient working capital and poor demand accuracy.
To borrow from W Edwards Deming’s theory of
management, now is the time to optimise the whole.
That isn’t about spending vast amounts of
money: the solution isn’t to invest in yet another
expensive suite of software; the solution is getting
better payback from the investments you‘ve already
made. It means looking at where your processes
are broken, improving them and then optimising
them as a whole. A small investment now can bring
significant ROI in less than a year, in terms of cost
reduction and profit – not to mention survival.
Now is the time to take a fresh look at just how
good we really are at planning and managing the
supply chain; both in the short term and over the
extended horizon. Let’s look at why our lean
manufacturing facility isn’t actually being lean
because it’s being let down by elements of supply
planning; let’s look at why our (poor) planning
techniques are preventing us from producing the
optimum plan for manufacturing and so on.
Working capital is a classic symptom of substandard
process performance. If working capital
supply chain effectiveness alongside such things as
on-time delivery or working capital.
And he argues that it will require a crossfunctional
view of the world to achieve this. “Noone
has all the information so, when trying to
understand that risk, there are no simple answers.”
The new survey results and analysis reflect the
views of more than 75 global manufacturing and
service companies. PRTM surveyed the respondents
between April and May 2009, and contrasted the
had been under control as they believed, then
some companies wouldn’t be experiencing the
sudden shortfall that they are now. The problem
has merely been revealed as a result of processes
under stress.
Equally, there is a renewed focus in demand
planning because organisations are recognising
that their forecasting process has been over-reliant
on historical data. Now much of that historical data
has been wiped out by recent events, this type of
If working capital had been
under control then some
companies wouldn’t be
experiencing the sudden
shortfall that they are now.
statistical forecasting is impossible. Companies are
having to revert to a forecasting process where
history is only a small component, and assumptions
and plans about the future, are by far the biggest
element – this is true demand planning.
For some businesses, these issues need a rapid
solution for them just to survive. And while quick
fixes are not the answer in their own right, they can
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