Make your supply chain recession-resilient

The strain on supply chains keeps building. Manufacturers have been fighting to pull their supply chains through market disruption, pandemic turmoil and inflation. With a recession looming, there are even more risks that demand attention.

Manufacturers have carefully managed a complex combination of supply chain factors like raw material prices, freight and transportation costs, energy costs, wages, and other workforce concerns. Now, the World Bank has said that it expects material shortages, political tensions, high energy prices and other factors to cause an increased risk of recession. That could upset a supply chain balance by adding:

• Unpredictable demand
• Inconsistent supplier performance
• Uncertain product availability
• Increased costs
• Excess inventory
• Insufficient warehouse space
• Constrained cash flow

Even small changes in demand can have a bullwhip effect with amplified impacts back through the supply chain. That’s a lot to manage, given the complexity of modern supply chains, and many of these factors aren’t likely to stabilize in the near future.

To weather the latest recessionary risks along with long-term disruptions, manufacturers need a two-pronged approach. They need to manage short-term cost and cash pressures through aggressive cost take-out initiatives, while continuing to develop more holistic and long-term supply chain resilience ahead of future disruptions.

First, fight the fires

Many manufacturers need to take quick action to address the growing supply chain issues with costs, cash and service:

Cost

Before you cut your costs, make sure you understand them. Your first step is to quickly analyze and reforecast your fixed and indirect costs based on any new supply chain impact. That recalculation will drive many of the decisions and priorities that follow. Protect your long-term assets, scalability, relationships, service levels, operating margins and other factors for future success as you weigh potential cost control measures. Cost control measures can affect hiring and workforce; overall equipment effectiveness and productivity; spend analytics and strategic sourcing events; and contract optimization and rationalization with vendors and providers.

Cash

It’s good to have cash. Your cash flow might take a hit in a recession, but make sure you keep the right priorities in mind as you look at ways to rebuild flow. Manage your working capital and capital expenditure strategy to increase cash flow while protecting the investments that are key to your strategic vision. If you find places to cut costs, consider how you can invest some of that cash to drive the efficiency, capabilities and technology that will quickly help build your gains and momentum.

Service

You need to keep the customers that are worth keeping. Look at your sales, demand planning, customer segmentation, and other current analysis with future projections so that you can understand how to prioritize your service to customers. Scenario planning can be a critical tool as you try to ensure consistent service. If you slow down production or make other changes that might affect your delivery, make sure you are doing what you can to take care of the customers who will take care of you.

Then, build long-term resilience

These are challenging times. That can drive manufacturers to make some decisions that cut off their future. Even as you manage the current recessionary pressures, you need to keep an eye on your long-term resilience and growth. If you’re not already planning to win the post-recession recovery, then you’re falling behind those who are. So, watch for the places where you can build your agility, resilience and scalability for the long term.

Agility

Is your company ready for change? Your workforce can support or detract from your readiness. Many manufacturers have already looked at places to use independent contractors and temporary workers for agility and seasonal work. You might also need to consider where you can outsource non-core functions, but be careful that you maintain the skills, talent and culture that differentiate you from the competition. You can also look at leasing, rather than owning, facilities, equipment and other assets. When agility is at a premium, the ability to respond has value beyond a pure cost calculation. Warehouse availability and agility have become important topics, and manufacturers have learned that lean strategies need to become much more sophisticated. Many are shifting from a just-in-time inventory strategy to a just-in-case inventory strategy, which requires more sophisticated strategies fed by data. Reduce the burden of shortages, excess inventory, returns, and cancellations by improving pick and pack productivity, order accuracy, lead times, on-time performance, and quality/damage rate.

Resilience

To build long-term resilience, you need strategic sales and operations planning (S&OP) in place. S&OP should be coordinating your plans across demand, supply and finance so that every area is pushing the same way toward success. You should also look at establishing or refining your procurement team, along with a team that is explicitly focused on managing expenses and driving value. The warehouse data and analytics that inform your agility can also help support your long-term resilience. Work toward a warehouse management system that supports process efficiencies, clearer planning, increased automation, maximized floorspace and an optimized workforce.

As you look beyond your organization, reassess the balances you have set for decisions like make versus buy, offshore versus re-shore and insource versus outsource. You can also reassess suppliers in terms of supply base distribution, each supplier’s financial health and your opportunities to consolidate vendors. Develop supplier KPIs to help inform these decisions into the future and ensure transparent expectations.

Scalability

To improve scalability, you need to stay aware of your options and their likely impacts. Ensure that your scenario planning gives you a clear understanding of where, when and how you have chances to scale. Develop a “command center” approach in your company leadership, with clear governance about how you can take decisive actions at the right time. Integrate your systems now, for seamless real-time communication across your inventory, purchasing pricing and other functions. Scaling your company or capabilities will be critically delayed if you have system integration issues before you even begin. Lastly, think beyond traditional growth options to consider alternatives like cellular manufacturing that processes individual pieces from start-to-finish rather than in batches.

Look ahead

Inflation and pandemic pressures have already driven manufacturers to consider efficiencies and cut costs. Recessionary risks and other ongoing challenges could push manufacturers to go too far and sacrifice their competitive viability for the future.

That’s why manufacturers must consider their long-term agility, resilience and scalability as they make moves to reallocate cash, reduce costs and maintain the right level of service. As supply chain and market volatility continues, manufacturers must become increasingly sophisticated about how they maintain resilience.