Supply chain management anti-trends for the down economy

[Randy Littleson]

There seems to be no shortage of discussion about the latest trends in supply chain management or any number of other topics for that matter. We decided to take a look at this from a different perspective and think about the supply chain management “anti-trends” for the down economy. I asked Trevor Miles for his thoughts and have added a few comments of my own.

• Procurement practices will become more, not less, adversarial in 2009. Despite the strong need to work more closely with their suppliers, possibly even offering them shorter payment periods, from a supply chain risk management perspective, companies will not do so. They will force cash-strapped suppliers to accept longer payment periods. When the supplier files for Chapter 11 they will use this as proof that they took the correct course of action. There will be enough occasions when they were right that everyone will ignore the majority of cases where they were wrong. Companies that buck this trend and strengthen supply chain collaboration during these tough times will exit the downturn in a much stronger position.

• Integrated Business Planning will remain a wish. The social and cultural divide between Finance and Supply Chain, let alone the language divide, is too broad and most people lack the incentives to cross the divide. Most supply chain people, especially manufacturing, are measured on asset utilization and production volume, not on satisfying customer demand profitably. Most finance people are measured on aggregate key performance indicators (KPI’s) and have no knowledge of the ripple effect changes in one KPI can have on other KPI’s. As a consequence, just getting Sales and Production to sit together to perform rudimentary demand/supply balancing is considered to be an example of sales and operations planning (S&OP).

• Western brand-owners will lose a lot of market share. For years the west has been outsourcing production to Asia, particularly China. A minority have established their own production facilities, but the majority have outsourced to contract manufacturers. As Asia emerges from the current economic slump, and Asia will emerge sooner than the west, many of the contract manufacturers will establish their own brands. They will have better knowledge of the needs/desires of the consumer and much shorter supply chains. Of course many western brand owners will respond appropriately, but the majority will still be designing products for western markets and trying to sell the products in Asia.

What do you think? What supply chain management “anti-trends” do you think will emerge against conventional wisdom?

Randy Littleson is a Vice President for Kinaxis, provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities.

[stilwebm]

In regards to the third bullet point, I think only some brands, primarily those that are primarily commodities, will lose ground to Asian manufacturers. An example that comes to mind is Haier.

Companies that have vertically integrated are suffering from their inability to reduce capacity quickly. Meanwhile companies that outsource operations are more agile and able to continue to focus on their brand and innovation.

Whether a commodity or not, vertically integrated or not, Western companies must take the threat seriously and continue to invest in relationships with customers and innovation. This is especially true of their Asian customers, where the threat is greatest.

[Trevor Miles]

Of course all of this is speculation and many of the 'global" brand owners will maintain their global position. The transition may not be quick, it may take 25 years, but I think in less than 25 years we will be looking at a very similar situation as with the Auto industry. Early versions of the Japanese cars were derided for many valid reasons, but I would rather bet my pension on Toyota than GM. it may be in Aerospace, it will more likely be in electronics.

If I was in a board level position at, say, Apple, I would establish a large design organization in China.