Modern Day Superheroes of Business
The end is nigh; is that a good thing or bad thing? Recent articles have painted a grim picture of an uncertain economy and financial markets in the months to come. Some experts claim we are on the verge of chaos in equity markets, with key indices down over 20%, and bond markets in a panic globally. Dale Davidson, famed economist who predicted the economy collapse of 1999 and 2007 warns, “Don’t imply that a 50% collapse is looming – it’s already at our doorstep.” Royal Bank of Scotland advises, “Sell everything” because “in a crowded hall, the exit doors are small.” Fortune Magazine asserts, “Here Comes the Biggest Stock Market Crash in a Generation.” Someone even went as far in a Washington Times op-ed to say “It’s worse than 2008, it reassembles 1937…”
Headlines and markets may be important to stockholders, but despite what you may be hearing, business operations are not coming to a terrible end in the next twelve months. If you are a retailer, manufacturer, or distributor, the day-to-day moves in the Dow neither drive nor necessarily reflect the day-to-day operations of your business.
What does this mean to business?
It suggests that you still need to accomplish yesterday’s tasks, but more efficiently. Managers must cope with potential lower demand for goods and services, limited pricing power and strong deflation pressures, and tight credit for consumers as well as businesses. This all begins to create the perfect storm and adds up to:
Smaller top line
- Lower or even shrinking top line growth as consumers restrict spending
- Potentially less consumers with additional job losses
- Less financing available because of uncertain financial conditions and tight consumer credit
Reduced bottom line
- Worse margins driven by too little demand
- Too little disposable income
- Too much inventories placing pressure on cutting prices to retain sales
Less cash and more costs
- Higher cost of operations, created by the tight credit and higher cost of money when it is available
- Increased volatility of demand and the desire to maintain low inventory levels creates imbalances, drives inefficiencies, and adds cost
So what needs to change?
There really are not many silver bullets available. In good economy, you could look to sales and marketing and follow a top line growth strategy effectively, but when the sales tank due to poor economy conditions, there is only one thing that works best: An effective Supply Chain with a laser sharp focus on Cash, Cost, and Efficiency.
During uncertain times, a good demand plan and supply chain strategy is the cornerstone that can deliver both cost and asset turnover.
In fact, supply chains are the foundational element that can make or break an organization during down turns in the economy. Take, for example, forecasting improvements. Improvements to forecast accuracy can enable efficiencies and improve responsiveness to market conditions. More accurate demand forecasts facilitate better plans, resulting in lower inventory levels, increasing inventory turnover while simultaneously improving customer service levels. For operations, better predictions of customer demand enable higher capacity utilization rates, which lower per unit costs, and facilitate the staging of inventories at key locations in the supply chain.
So what should businesses do to prepare for a bad economy?
With today’s instability in the economy, companies should increasingly focus on the adoption of supply chain best practices and development of their supply chain talent to help navigate the rough waters ahead.
A perfect example of this is the opportunity provided by the University of Kentucky’s Gatton College of Business and Economics. The University of Kentucky will host the 6th Annual Supply Chain Forum on April 1st. Forums like this provide the opportunity to meet and share ideas with the next generation of leaders and students have rare opportunity to learn from the best of the best, and network with executives and experts in the supply chain field. (For more information on the 2016 Supply Chain Forum, contact Lucy Tepper, conference coordinator, at 859-257-8746, or visit the Gatton College of Business & Economics website.)
Especially in difficult times, supply chain has become a fundamental weapon to compete in an uncertain and changing economy. The smart companies will not only be attending conferences but look at other ways to strengthen their supply chain functions.
I am not sure what the stock market may do, but I do know what the top performing companies will do during a bad economy. When and if times do get tough, the best companies utilize forecasting and supply chain strategies that will not only see them through a rough economy, but create efficiencies that translate to higher growth and margin after the downturn as well.
Suggested Further Reading from the Editor
In light of uncertainty, supply chain planners prepare by doing what-if scenario planning. Here are three blog posts and a white paper on the subject.
- Using What-if scenarios to create a dynamic S&OP paradigm
- Port shutdown and other what-if candidates
- How many What-if scenarios should be a part of the Monthly S&OP Process?
- You will have to register for this white paper: The Anatomy of a What If