SUPPLY CHAIN STANDARD JULY/AUGUST 2009
www.supplychainstandard.com
responses with those of more than 300 global
executives who participated in PRTM’s Global
Supply Chain Trends 2008–2010 original study,
released in May 2008.
The survey also found that improving cash flow
and working capital has emerged as urgent. Even
those that are considered “healthy” assume they may
face challenges when seeking funding from financial
institutions, due to stricter requirements. Inventory
reduction is the main focus for increasing cash flow,
according to 74 per cent of those surveyed.
The crisis is also forcing changes to some
companies’ global footprints. Some supply chain
executives are questioning recent outsourcing
decisions and “in-sourcing” selected activities. This
trend is most widely reported by companies in the
automotive sector, where 27 per cent of
companies surveyed plan to in-source activities to
tighten control over supply chain performance.
Others are sharply increasing focus on supply
chain flexibility – the ability to maintain costeffective
delivery capabilities in times of
unscheduled and large demand fluctuations. This
is still considered the most critical success factor
for supply chains worldwide.
“The recession has sharply degraded the
reliability of demand and supply forecasts beyond a
three-month window. This explains why more than
half the participants say that supply chain flexibility
is even more critical than just six months ago,” says
Colborn. Many are redesigning their Sales &
Operations Planning (S&OP) processes and
embarking on initiatives to reduce product
complexity as a result.
become the start of a journey of improvement that
is sustainable in the long term. So the benefit of
exposing a raw area is that it brings in to sharp
focus the need and the place to start – the
symptom has revealed itself but it is also revealing
the underlying problem; the one you really need to
fix. So let’s start from where we are; get the rapid
results we need to ride out this difficult period, but
also use it as a base on which to build for the future.
Organisations which have already started to
focus on optimising the whole, will be better
positioned to take advantage when demand
improves again, bringing a reverse of the situation
they have just gone through. It will be important
for those companies, which have had to strip out
capacity, to see the upturn coming because it will
probably take six months or more for them to get
back to improving output. Missing the downturn is
one thing but not meeting volume on the upturn
will surely just play into the hands of competitors.
When it comes (next year or the one after that), the
recovery will require a supply chain that is under
control, flexible and responsive. It isn’t too late to
start, but those companies which don’t react by
preparing for the future now, will miss the
opportunity when things start to pick up again.
LES BROOKES IS CEO OF OLIVER WIGHT EAME
RATIONALISED AND OPTIMAL
Manufacturing output in the first quarter of 2009
may have fallen by 5.5 per cent but the latest
figures from the Office of National Statistics also
suggest that the monthly fall between February
and March was only 0.1per cent – the lowest in
consecutive months for more than a year, implying
that those long-awaited“green shoots”could soon
be appearing.
Much of the decline in output in recent months
can be attributed to destocking. Richard Lim,
analyst with the British Retail Consortium, suggests
that retailers have reduced inventory levels by ten
to 15 per cent. The numbers no doubt vary
significantly between sectors and also disguise
many of the more subtle changes in ranging
brought about by the recession. Overall food sales
have generally held up well – after all, we all still
have to eat, despite the downturn. Mainstream
food retailers, however, have seen a shift both to
value lines and premium ready-meals as
consumers both cut costs and compensate for not
“eating out”by opting for an“eat-in”treat.
In non-food, those overloaded display racks and
crowded shelves have, of necessity, been slimmed
down with streamlined collections: instead of 20
different skirts or blouses the shopper may now
have to choose from just a dozen; instead of 12
different sofas there may now just be eight or nine.
This is not a new trend brought about by the
recession but simply an escalation of one started
some years ago when department stores, such as
House of Fraser, began to“optimise”their
assortments to maximise profits rather than sales.
Over the past few years“optimise”has been one
of supply chain IT’s favourite weasel words. We
have had price optimisation, promotions
optimisation, space optimisation, markdown
optimisation, transport optimisation, demand
chain optimisation and very many more.
“Optimisation”per se does, however, remain high
on the agenda. Some 90 per cent of the 51 leading
retailers questioned in a survey conducted for the
BRC and SAP earlier this year answered“yes”to the
question: Do you plan to optimise inventory levels
in the supply chain to better manage costs?
It is the sort of question to which one might
expect cash-strapped retailers to respond to
positively, but it also reflects that despite the
“optimisation”hype of the past few years most
retailers accept that they still have a long way to go
to achieve optimum efficiency. In the boom times
it was all too easy to carry a little excess stock,
deliver to stores two or three times a day, tolerate a
few loss-making promotions, or markdown rather
more merchandise than was absolutely necessary:
SCS:VIEWPOINT 05
The current recession has seen massive destocking by
retailers – is this the new norm or will the shelves fill up
again come the upturn?
PENELOPE ODY
the profits were still climbing and the punters were
still spending. Today it is different. Taking cost out
of the supply chain by more efficient vehicle
routeing or assortment planning is a very real
necessity. Buying departments, supply chain
operations and demand forecasters have to work
more closely to create the sort of“seamless”
enterprises that theorists are fond of describing.
Recent consumer surveys suggest shoppers
will take a very long time to go back to their prerecession
profligacy. A survey from the IGD,
published last month, maintains that 75 per cent
of those questioned expect to stick with their new
thrifty grocery shopping habits when the
economy recovers.
Some forecasters may already be predicting that
consumer memories are short and we shall all be
racking up credit card debts again within a few
years – but shall we? Those over-inflated house
prices and the lifestyles that 120 per cent
mortgages financed, today seem a very long way
It may no longer be possible
to offer those 20 different
skirts or 40 sorts of coffee
that currently extend along
the supermarket shelves.
off. The world is also changing: not just because of
concerns over climate or the scurrilous
machinations of our MPs, but because the supply
chain is global and the balance between demand
and supply has never been more complex.
Demand from increasingly affluent shoppers in
India, Brazil, China or wherever for finite supplies
will inevitably stretch both availability and price. It
may simply no longer be possible to offer those 20
different skirts or 40 sorts of coffee that currently
extend along the supermarket shelves.
Consumers still want choice and “customised”
products personalised to one’s individual taste –
all those permutations of car trims and colours,
for example – have long been seen as the
ultimate growth area for the future. Combine
build-to-order with internet shopping and
simplified in-store assortments and not only do
you need fewer deliveries to store, but the
destocking that has been driving much of that
decline in output could continue for some time to
come – green shoots notwithstanding.
PENELOPE ODY IS A REGULAR COLUMNIST FOR SCS
AND IS A RETAIL MARKET SPECIALIST.
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