Is Supply Chain Planning still the top most priority of investment during uncertain times?
In the current downturn, organizations are typically looking at spending only on sustenance and not wanting to start any new projects/initiatives- however there are organizations which have a clear focus of ensuring that they make the right investments in a downturn to overcome the challenges faced and also be ready when the economy revives. Organizations are always thinking of planning and optimizing their investments and this is more relevant in the current economic scenario. Areas of investment in Supply Chain during the current dark period’ gave us some interesting outcome.
A recent poll on "Key Supply Chain investments areas in your organization" conducted on our blog concluded that more than 50% of the respondents mentioned supply chain planning (demand planning and supply planning) as the focus area in such an environment. Let me give you my perspective on the same. Demand and supply planning becomes a key in this situation compared to the normal hay period. Demand and supply balancing will have an impact on the corporations working capital requirements. Hence an accurate demand forecast holds key which will ensure that supply will be in tune with the demand forecast and corporations do not carry excess inventory and minimize the working capital requirements. It is important to note that no sophisticated demand forecasting tool would have been able to forecast this downturn as there was no such occurrence in history to support this. However tools which could react faster to the declining sales in previous months and forecast accordingly would have helped corporations– this would have needed the support of human intelligence for forecast adjustments. The holistic objective of getting the correct forecast numbers seem to top the priority list of corporations and hence investment in robust processes and tools in the demand planning area in the downturn. Along with good demand planning, supply planning also gains importance as corporations should relook at supply plans. Also getting this forecast right will help the fortunes of the company when the economy is on an upswing and hence the investment in the planning area is for all times.
Other investment areas are on expected lines. However I thought that Transportation management would have been higher on the investment agenda as the savings incurred are faster. In hindsight it could be that since demand has reduced therefore correspondingly there is reduction in shipping of supply and the view may be not to invest in transportation management in a downturn.
Geographically there is slight difference in the thinking of the corporations. Corporations in US and EMEA have Planning and Strategic Procurement as the top 2 investment areas while corporations in the rest of the world have Supply Chain Risk Management as the key area for investment after Planning. One of the reasons could be that corporations in the US and Europe already have addressed Supply Chain risks as quite a few of them have built global supply chains and hence may have addressed the supply chain risk aspect.
I would like your point-of-view on areas of investment organizations are adopting or should adopt in this down turn to thrive in the future.
Comments
Your comment about the inability of sophisticated forecasting tools to predict the downturn is so true. The ability to respond is a differentiator for companies. Human judgement and intelligence is required to apply risk analysis and make the tough decisions on forecast calls. North America is a continent of knowledge workers. Let's use that to our advantage rather than relying on software to spit out the wrong answer.
Posted by: Carol McIntosh | May 25, 2009 03:05 PM
Even if the models or humans could predict the downturn and its impacts, the ability to better execute through improved transportation and inventory management remains the key. Do I order less to maintain my turns and risk LTL rates? Or do I maintain my truckload/container load efficiencies and impact days on hand/turns? I see network, transportation, and inventory modeling tools as critical to provide "what if" scenario capabilities as well as an ability to quickly quantify the tradeoffs.
Posted by: Chuck Chase | May 26, 2009 01:13 PM
I agree that improved transportation would be a key aspect. Hence I was surprised when the poll results showed investment in transportation not to be a high priority in this downturn.
Posted by: Amit | May 27, 2009 05:22 AM