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Where to Bet Your Supply Chain Chips in Times of Crisis?

Whenever the economy goes through a deceleration period (and it always does), there is a wild race for cost reduction. It is true that any company (and the government, why not?) should always seek cost reductions and not only in times of economic crisis. But is this the only basic bet when we speak of Supply Chain for companies?

We conducted a survey with large company executives in different business segments at the beginning of 2016 with the theme "Supply Chain in Times of Crisis", which shows some results challenging the simplistic view of cost reduction as the sole focus of company bets.

The first finding is that we should do our analysis by segment. The survey showed that focus of new retail initiatives is related to improving service levels. That is, issues such as on shelf availability, on time deliveries at the point of sale, complete orders, inventory accuracy (physical and virtual channel), among other subjects, are betting points for improved company results. In times of scarcity, losing sales can be more damaging than managing costs.

As for manufacturers, due to successive cost reduction initiatives in recent years, bets are focused on initiatives that support increased revenue. That is, issues related to Time to Market and structuring the chain to meet specific needs of customers regarding new or customized products, are the main bets. As for the service sector, which was the last segment to feel the consequences of the crisis, it is now betting on "Red and Black" at the same time - in other words, reducing costs and increasing service level. Finally, none of the three segments prioritized the use of capital as expected. Just as ordinary citizens stopped buying durable goods, companies are avoiding to spend money on new DCs, trucks, forklifts and other asset purchases. The message here is to focus on optimizing existing assets, improving the profitability of investments already made.

The survey also sought to measure the Supply Chain maturity level of the companies.

More than 60% said that their supply chains have planned improvements or require improvements. The main focus, in the following order, were: integrating new businesses, inventory optimization in the chain, supplier management and centralizing operations. Our analysis is that after the expansion period when companies have grown and acquired new businesses, now is time for digestion. And this digestion must be fast, as the tides have turned.

The logical consequence of this context is that companies should speed up their projects as time is against them. But the survey also showed that 63% of companies pointed out as major difficulties in executing projects, the lack of a team dedicated to these initiatives, lack of support from other organization areas, lack of (IT) systems to support the action, and dependence on the maturity of other areas.

Then, what is the solution? Hire help or third-party companies. How to do this in a cost containment environment? So, we have a chicken-and-egg dilemma…I don't spend because I don't carry out the projects or I don't carry out the projects because I don't spend. The solution for this impasse is to take a calculated risk, taking into account the benefits to be generated in each project, investments to be made and reliable delivery. We know that today few third-party companies can offer these three items successfully and thus effectively help businesses.

One last important topic was which are the critical success factors in a Supply Chain project in the respondent company. In this item, 52% of companies indicated that implementation planning, clear and well-defined project scope, stakeholder support and change management are the most critical items to have a successful project. Other issues that also appeared were clear and well-defined scope, stakeholder support, well-structured Business Case and implementation follow-up. All these items are directly linked to effective project management.

In conclusion, we can compare the management in times of crisis with treating a flu. We know the medicine we have to take and what is our basic plan.

It has to be done, period. But if we want to go further, especially in matters related to Supply Chain, we must be more creative and assertive, correctly attacking the needs of each business segment, taking into account their degree of maturity in the chain.

Taking only basic medicine may not be enough for a crisis that is more similar to H1N1 than a normal flu. Maybe it's time to embrace unorthodox solutions that ensure during the crisis and post-crisis a more lasting competitive advantage. Like the famous American quote: "It´s on tough moments that we separate the men from the boys".

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