Planning for changing times

As lay-offs, redundancies and corporate failures increase, staying in business until the recession winds abate is the obvious priority for companies. But when it comes to supply chain we're in new and uncharted territory.

In recent years, the emphasis has been on aligning the supply chain to consumer demand with analysts and endless white papers extolling the virtues of the 'demand chain'. The problem now is that demand has largely been turned off.

Two-thirds of people questioned in a recent survey said they would put any spare cash into savings and reduce debt rather than buy more products. The survey coincided with a report on childhood, which argued that parents are so busy earning extra money that children are being neglected and parental conscience is assuaged by expensive toys.

If the savings culture persists and some parents decide that spending time with their children is preferable to working to pay the child-minder, where does that leave an economy built on ever-increasing consumer demand?

Traditional drivers for hitting the shops - such as moving house - are expected to take some time to recover, so Experian's forecast of one in six UK shops (15 per cent) closing by the end of 2009 looks possible.

Among other things, this means clever IT tools that monitor consumer demand and give rapid feedback to buying and production could gain in popularity. Interestingly, it's one of the few areas where IT investment is currently active - if the press releases about new contract wins that trickle into my inbox are to be believed.

Typically, the fulsome client quotes justifying such investments talk of 'improved forecasting' or 'earlier and more accurate forward visibility' - both vital attributes in times of widely fluctuating consumer demand and essential for spotting those much heralded 'green shoots' when spending does pick up.

Demand monitoring is only the start: data can be ploughed back into other supply chain activities, such as warehouse space needs and vehicle scheduling. Analysts have been talking about the need for more flexibility here, effectively supply chain planning on the fly, for years. Some used to suggest that flexibility should be such that a truck en route to one supermarket might be diverted to another if word came in that a crucial 'out-of-stock' had suddenly occurred.

During the boom years, such concepts generally fell on deaf ears: if the supply chain was not quite as efficient or as cost-effective as it might have been, then why worry? Profits still kept rolling in. It's now different, and more flexible and adaptable working practices may be essential attributes to staying in business.

While a finger on the demand pulse is essential, so is cutting costs - which is another clear theme in the round of announcements and white papers. IT vendors are combating the current downturn by promoting managed services as a cost-effective solution.

If switching to managed services can produce 72 per cent savings in a company's business-to-business IT expenses, as a white paper from a leading software provider claims, then it's obviously going to be something that many will consider.

A recent white paper published by GXS, a leading provider of business-to-business EDI and supply chain integration, synchronisation and collaboration solutions (www.gxs.com/products/outsourcing/managed_services.htm), focuses on total cost of ownership in managing B2B programmes, taking into account not just hardware, software and infrastructure, but staff time, training, change management, programme management and operational expenses.

On these calculations, savings over three years are said to hit £2 million or more. For any company that is looking to cut costs and debts, these numbers will look tempting.

It is, however, a far cry from the outsourcing rationale a few years back: the experts had advised it was wrong to look on outsourcing as a means of cutting costs. Rather, it was a tactic for ensuring the most up-to-date software, reducing risk, circumventing a skills shortage or many other worthy reasons. How times change.

As the recession bites, more will no doubt want to focus on core activities, adding options like software-as-a-service applications and various collaborative initiatives to the usual outsourced activities.

And if 'on the fly' flexibility really does prove vital for tomorrow's supply chains, as these struggle to react to the vagaries of consumer demand, it may well be that few companies will have the enthusiasm or in-house expertise to deliver such sophisticated services.

Source: Extend SCM 2009. Extended Supply Chain is an established annual event attended by Europe's most powerful and innovation supply chain leaders. Practitioners get together to learn the latest technologies and best practices to improve speed, accuracy and profitability of responding to customer demand.

Mr Borg is a trainer and consultant in logistics and supply chain management and director of Support and Supply Management Group Ltd - www.ssm-group.org.