10 SCS:VIEWPOINT
STRATEGY
Skills at a premium
Do European companies have
the supply chain capabilities to
meet the global challenges?
GORDON COLBORN
The findings from PRTM’s latest Global Supply Chain Trends Survey
indicate that“by 2010, the need for greater supply chain flexibility
will overtake product quality and customer service as the major
driver for improving supply chain strategy”.
Should we be surprised by this? I think the answer is probably no.
However, I worry when I start to piece together a number of
findings from this year’s study. Let’s take a look at a few of the
headline findings:
1. Globalisation is accelerating; leading to large structural shifts for
global supply chain organisations.
2. Many companies are struggling to realise the planned benefits
from globalisation initiatives.
3. Major barriers to globalisation include limited supply chain
flexibility and the lack of internal competency to manage partners.
4. Acceleration of supply chain maturity*, enabled by advanced
supply chain practices, appears to have reached a plateau.
For me the results pose a wider question and spotlight an
emerging concern; do UK and European companies have the
supply chain skills and capabilities to meet these global challenges?
Are we losing the ability to structure high performing supply
chains? Over the last five years this study has seen a gradual
increase in supply chain maturity (*a term we use to measure the
practices that organisations are deploying across their supply chain)
among UK and European companies. However this is the first year
that has bucked the trend. Are we seeing these practices plateau?
For many companies, especially where there is limited
opportunity to differentiate elsewhere, the ability to create a
responsive, agile supply chain is worth its weight in gold. This
capability allows the company to respond quickly to changing
market conditions – whether it be customer demand, technological
development or something else outside its control. An integrated,
global supply chain which is responsive to external changes can be
the difference between success and failure.
The loss of manufacturing to off-shoring and outsourcing is one
factor behind this issue. Once at the core of the supply chain,
manufacturing forced companies to consider every element of the
supply chain process (plan, source, make and deliver). These skills
were embedded in every manufacturing company. With the
emergence of the Far East as the‘manufacturing centre for the
world’, Asian companies – once associated with long lead-times and
large batch sizes – are now starting to develop more agile,
competitive supply chains.
With growing competition and added complexity, the ability to
construct a responsive, flexible, multi-partner supply chain is harder
than ever. Are we doing enough to develop and maintain the skills
and capabilities to do this within our companies? Or are we losing
the skills to design, implement and manage supply chain strategies
that are necessary for success in today’s world?
Can we use the opportunities from globalisation without
handing over the crown-jewels?
GORDON COLBORN IS LEAD DIRECTOR FOR PRTM'S UK BUSINESS
RULES OF ENGAGEMENT
When economic belts tighten, the
business rules of engagement change.
PETER BARTRAM
I laughed when I read that 16 big name
retail chains are asking their landlords if they
can pay their rent monthly to help cash-flow
during the current hard times. You might as
well ask Jaws to stop eating swimmers.
Apparently, those scratching around for the
rent money include BHS, Boots and The
Carphone Warehouse.
Even so, if we can all stop sniggering for a
minute, there could be a serious point here.
Which is that when economic belts tighten.
the business rules of engagement change.
Of course, at this stage, all we can be certain
about is that the European economy is
heading south. But logistics professionals
should, perhaps, start to readjust their
business thinking.
By my reckoning, this is the fourth major
economic downturn (possibly it will be a
full-blown recession) since I started writing
about business all those years ago. All have
had implications for logistics.
First, there was the oil shock in the 1970s
– two shocks to be strictly accurate, one in
1973, the other at the end of the seventies.
That rushed the question of distribution
costs to the top of the logistics agenda.
Then there was the downturn of the early
eighties. That crushed the lifeblood out of a
lot of Europe’s manufacturing industries and
led to a wave of M&A in the later eighties.
One of the logistics spin-offs was the growth
of highly automated mega-warehouses.
Then there was the early nineties recession,
which led to a savage drop in consumer
spending – the last time high street giants
really felt the strong winds of economic
realism. By the mid-nineties, many were
starting to look seriously at how they could
sell more online.
But what strikes me about all of these
downturns, is that the reaction has always
come afterwards. Not many have thought
about the changes they ought to make if
times get tough before their cash-flow hits
the fan. It’s almost as though they need to
feel the pain before they can find the gain.
Will that be true this time around? For most
companies, I guess that might prove to be
the case. But not all.
What strikes me is that some parts of the
economy are doing better as a result of the
downturn – the low cost supermarket
chains, for example. It’s a truism that when
money is short, prices must fall. Prices will be
SEPTEMBER 2008 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
under pressure. But those who succeed will
be those that learn how to structure their
pricing to minimise the bottom-line hit.
One approach to this will be to offer
customers different service levels. Cleverly
done, this provides an opportunity to
segment the market and seek out customers
who are willing to pay for a premium service.
But offering customers premium delivery
services becomes difficult if stocks have
been squeezed too tight. And inventories
are usually among the first things to get
squeezed when cash is short. Cutting back is
fine when stock has been allowed to rise to
levels that are on the generous side. Where
stock is already under control, cutting more
can lead to worse customer service – which
may eventually drive buyers away.
So that means that decisions on stock
levels really ought to be the result of
It’s almost as though
they need to feel
the pain before
they can find the gain.
sensible and informed debate between
logistics and the sales and marketing teams.
Not forgetting, of course, finance who will
probably be driving the move to cut back.
The key point, as I’ve indicated, is that deep
or long downturns – this one may turn out
not to be very deep but quite long – usually
lead to some important strategic change.
The winners spot that, the losers don’t.
This time, I think we’ll see online sellers
carving a larger slice of the sales pie in both
retail and business-to-business. Firms which
provide added value for customers should
do especially well – for example,
supermarket deliverers that unpack your
shopping. Logistics operations that learn of
ways to build in extra customer value will
help their firms become winners. Which is
good news for them.
But bad news for those 16 high-street
chains seeking easy payment rent plans.
They will have to look extra hard to find their
landlords’soft spots. That could prove as
tough as hunting for a shark with no teeth.
PETER BARTRAM IS A BUSINESS WRITER,
JOURNALIST AND AUTHOR OF 20 BOOKS.
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