Preparing Your Supply Chain for the Next Downturn

By Steve Wells

The food and beverage manufacturing industry has its ups and downs just like all businesses. However, unlike most businesses, it experiences dramatic shifts in consumer buying patterns. For example, the trans fat and the Atkins Diet crazes created tremendous, rapid shifts in buying patterns that caught many manufacturers by surprise. Knowing that the industry is fickle in this way, what can food and beverage manufacturers do to prepare for a future downturn? And what can companies in other industries learn from the F&B sector?

Don't Wait — Prepare Now

The first and most important step is to start preparing your supply chain right now for the future. Don't wait for the downtown to happen to address these issues, because when it does happen (and it will, at some point), it will be the speed of your response that will dictate your ability to remain profitable or even survive. The challenges you could face during a downturn might be daunting without a plan. You may be forced into making decisions without supporting data and you may well be betting the company on those decisions. Expenses such as utilities, plant operations and labor are a high percentage of cost. And despite the push for lean strategies and customer-driven supply chain principles, one of the most common ways of dealing with any type of demand uncertainty in many companies today still appears to be to insure against the uncertainty by holding extra inventory across the supply chain — an expensive and increasingly unacceptable solution.

In the event of an imminent downturn, you need to know how you can best control these factors. To do that, you have to have the technology, such as a strong enterprise resource planning (ERP) application, to gather the necessary information in order to build scenarios so you will know the best way to respond.

Have a Plan

A question that might be difficult to answer without a plan is whether to reduce shifts or reduce lines. For example, if you have multiple lines making your products, which would have a better economic impact; reducing the shifts or hours of operation, or reducing the number of lines you operate? Or perhaps you need to do a stock keeping unit (SKU) review and cut the products whose sales have dropped below acceptable levels. Building several different scenarios based on the information gathered by your ERP system, lifecycles and known lead times could give you the answers you need to create an effective contingency plan.

You should also ensure that your entire supply chain is prepared. Think of every link in your supply chain and ask that they also prepare for any potential downturn. This means all your vendors are aware of your contingency plans and you are aware of theirs. And don't forget to ensure that your purchasing department is ready to adjust to a large fluctuation in demand as well. Traveling around the country, I've seen pallet after pallet of expensive packing material sitting around gathering dust because they are missing the current magic phrase "Zero Trans Fat."

By preparing your supply chain ahead of time for a downturn, you will have the comfort of knowing that you have prepared your company and fulfilled your fiduciary responsibilities, but there are often ancillary benefits as well.

Just reviewing each link in the supply chain and analyzing a dramatic shift may uncover problems you can solve today. For example, we recently had a customer that, after analyzing its supply chain, exposed an issue with corrugated cartons. The company had well over a 60-day supply on hand, based on its current contract. When they reviewed this, they found it would be much more cost effective to adjust the current contract and the purchasing levels, which freed up valuable warehouse space and reduced damage from extra handling.

Embrace Technology

Technology can help you build the models you need to prepare your supply chain for a downturn. Having the necessary data available via technology will allow you to create the "what if" scenarios and to measure the potential economic effect. Technology can also provide you all the supporting data to share with all the links in your supply chain and allow you to communicate your plans. It can also help in the event you need to execute any of the scenarios you've created.

The best solutions come from the right mix of people, processes and technology. With increasing business complexity, technology is an essential part of the equation for creating various response scenarios. But, as with most business issues, when planning for a downturn, carefully assessing the requirements and challenges, focusing on people and developing the right business processes are the best first steps.

Seek out systems that meet the specific requirements of your industry and your users. With increasing business complexity, it seems natural to seek out more sophisticated tools and solutions. However, provided the tools meet the industry-specific needs, there appears to be little correlation between the sophistication of the tools and the value they provide. In fact, there are many who argue that ease of use, enhanced visibility and the ability to rapidly do pragmatic "what-ifs" to determine the best way to respond are often more valuable than larger, more complex solutions.

Know the Real Value of Being Prepared

So, how do you justify the expense of technology investments in an era of tight budgets? How can you afford not to? Just look at what the Atkins Diet fad did to so many companies. Can you risk not being prepared? In addition, you're not really discussing a technology investment; you're preparing your business to react quickly and with a solid plan, using the tools that technology enables. If you have made contingency plans for dramatic shifts in demand in advance, you can react quickly and execute them as soon as the signals of an imminent downturn appear.

About the Author: Steve Wells is the general manager for CDC Software Supply Chain. For more information about CDC Software and all of its software offerings, contact info@cdcsoftware.com.

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