An economic down turn affects both the top line as well as the bottom line of an organization. While the focus in such a scenario tends to gravitate towards cost cutting by reducing headcount, every department including supply chain can take certain steps to help improve overall efficiency and reduce costs.
Let us start with the strategic objectives. The supply chain network was built to facilitate the growing organization. When lesser resources may be required due to drop in demand, it will be prudent to revisit the network and look at the following:
- Product classification: The costs and margins of different product categories. Maybe it is a time to optimize the higher cost – lower margin products with the higher margin products
- Warehouse space requirements – can some space be let go off? As lower demand may lead to lower space requirements, if possible release some of the space.
- Revisit stock norms: we generally keep a fixed days of supply as stock norms. However, if demand is lesser, do we need to keep that much stock
- Use of transportation assets: Is it possible to rework the transport contracts. Can the replenishment frequency be changed. You will not only reduce your inventory but also at the dealer – retailer.
- Utilization of manufacturing capacity: if capacity utilization is less, can the annual/periodic maintenance be done
Moving to the operational processes, the S&OP process can provide many insights. First, the forecasting algorithms used have to be revisited. Most software are configured to consider a growth trend. Such a configuration will give you higher inventory. Use past cyclical events to factor in a downturn in your forecast.
Use analytics to find out both geographical and product related data of where the demand is expected to go down. In your S&OP you can then plan for marketing campaigns to try to reduce this inventory/maintain capacity utilization.
Use analytics to find out both geographical and product related data of where the demand is expected to go down. In your S&OP you can then plan for marketing campaigns to try to reduce this inventory/maintain capacity utilization.
Try to move to a Demand Driven Planning system. So the replenishment system kicks off to fulfil stocks utilized and does not make to stock.
Improve and implement new warehouse processes: This will be a good time to improve warehouse efficiency by doing more training, implementing processes like cycle counting whose goal is to reduce discrepancy in inventory. Reorganize and reconfigure warehouse if necessary to improve the inventory accuracy.
Analyse all costs: Many times, in order to fulfil daily requirements, we do not do deep analytics. Take this time to analyse your supply chain costs. You can then root cause to the issues. Actions can then be taken to reduce and remove those inefficiencies to reduce costs.
Finally, review at your IT systems. Are all implemented systems being utilized. Maybe you can either retire those which are not being used, or retrain people to use the systems, so that the benefits can be realized. By retiring you stop paying support costs.
So, many such activities, implemented in a supply chain, can help reduce costs in a downturn.
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