Strategy & Leadership

Resilient supply chains in a time of uncertainty

May 29, 2010

Global

May 29, 2010

Global
Our Editors

The Economist Intelligence Unit

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Resilient supply chains in a time of uncertainty is a briefing paper created by the Economist Intelligence Unit on behalf of Oracle

As companies struggle to cope with the uncertain global economy in 2010, nurturing resilient supply chains is vital for survival. Companies must stay efficient to generate healthy cash fl ows, and agile enough to jump-start production and keep customers satisfied as demand rebounds. Even if the recovery proceeds more slowly than expected, companies cannot afford to sacrifice resilience—the ability torecover quickly from disruptions—for the sake of efficiency.

To survive the recession, companies were forced to hoard working capital. They slashed inventories, idled production facilities, laid off employees, negotiated more favorable deals with suppliers and transportation providers, outsourced more supply-chain functions and found other cost efficiencies wherever possible. They also stayed on alert for potential disruptions should key suppliers fail.

Better times now appear be ahead. Yet uncertainty still abounds. Is the level of demand sustainable? Can suppliers stay financially healthy? Will commodity prices start to rise again? When will it become easier to borrow from the banks?

“Sometimes it’s easier to manage on the way down in a recession than on the way up,” says Brian Hancock, vice president of supply chain at Whirlpool Corp. “It takes quite a bit of effort to bring capacity back on line, and everybody is hesitant to increase capacity in case they don’t see the economy returning to 2006 and 2007 levels.”

While the companies interviewed for this report found the recession daunting, they feel as well positioned as possible for the recovery. Rather than take a short-term approach to managing their supply chains, they have tried to balance cost-cutting with strategic changes. These strategic objectives include:

  • Ensuring sufficient resilience for a given level of efficiency. A more efficient supply chain enhances two drivers of value: operating margin and asset efficiency. Efficiency also has the beneficial side effect of shrinking the carbon footprint. But none of this matters if costs are cut to the point where the supply chain breaks.
  • Strengthening relationships with suppliers. Many companies have taken steps to improve relationships with suppliers—in some cases taking ownership stakes in them—while continuing to police them closely for signs of financial distress and making any necessary contingency plans.
  • Improving forecasts and planning. Companies are striving to improve the accuracy of demand forecasting, to manage inventories more precisely and to better respond to customer demands.

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