The economic downturn has been hard on almost every sector.  Many companies have failed, more companies are just barely hanging on, hoping that they can stay solvent until the economy turns.  Then there are the companies that have been impacted by the downturn but are likely to hold on until the next upswing.  This post is primarily targeted at those companies.

When times are tough, the natural inclination is to cut costs everywhere, hunker down and wait out the storm.   This most typical cost cutting approach is layoffs…which of course tends to make the general economic problem worse.  Don’t get me wrong.  Often layoffs are necessary, but too often companies cut to the bone in a panic reaction.  This does two things;

1. Puts the company at a disadvantage when things start to improve as they haven’t got the skilled employees needed to meet the new demands.  In many industries, training an employee to the point where they are fully able to work unsupported can take weeks or months and can often result in quality problems or errors as the new employee learns the ropes.
2. Eliminates the possibility of using skilled people, knowledgeable about your business, to implement improved business processes that will better position your company for success in the future.

Let me explain my second point.   It is my belief that no matter how bad the economic situation is today, the economy will improve.  When the economy improves, demand will start to increase and your business will need to be able to respond. Your ability to respond, and more importantly, your ability to respond better than your competitors will set the stage for how well your company performs as the economy improves.

So, what kinds of things can be done to better position your company for success?  Of course, there are numerous opportunities for improvement in any company, but I’ve outlined four ideas here;

1. Implement lean manufacturing (no, I mean really implement lean!) –  I say it this way because there are so many companies out there that say they have implemented lean manufacturing but in reality all they have done is moved their inventory to their suppliers and made those suppliers deliver more frequently, in smaller batches (at a higher cost to the suppliers).  Meanwhile their internal processes haven’t changed at all! (these are the same companies that are surprised and upset when their suppliers go out of business…)  To implement lean six sigma practices, you need to take apart your processes, examine each piece, identify which steps add value to the customer and which steps are waste.  Then you put the process back together, keeping the parts that add value and discarding the steps that don’t.  Once you have your internal processes in order, reach out to suppliers and customers to help them improve.  Then you continuously improve.  Sounds simple but it’s devilishly difficult to do – especially when you are struggling to meet demands.  But then again, in a down market meeting demands isn’t such a big issue…
2. Implement Sales and Operations Planning (S&OP) – I’m sure that everyone reading this has heard of Sales and Operations Planning.  It’s been in the press, the blogs, the analysts reports, almost everywhere you look.  And yet, there are many companies without a Sales and Operations Planning process .  Of the companies that are doing Sales and Operations Planning many feel that their processes could be improved.  So why is S&OP important?   S&OP provides two key benefits;  Visibility to demand and supply projections into the mid to long term (typically 12- 18 months) and the ability to bring the various departments together (Sales, Marketing, Supply Chain Management, Finance) to define a plan that all understand and agree to.   What does this mean?  According to Stahl and Wallace in their 2006 book, Sales and Operations Planning: The Executive Guide companies implementing S&OP can expect; better customer service, lower inventories, more stable supply rates, faster and better controlled new product launches and shorter customer order backlogs.
3. Implement a Supply Chain Risk Management process – This is another process that is getting a lot of attention lately.  I’ve blogged about the importance of Supply Chain Risk Management several times in the past, including a few posts on how to identify where you are at risk.  See my most recent posts here, here, here and here.  Supply chain events can happen in good times and bad. Companies that have the tools and processes to predict and mitigate risk as well as respond quickly when the unexpected happens will be able to survive a supply chain event relatively unscathed.
4. Implement tools and processes to help you respond to change – The one truism about the perfect plan is that as soon as it’s published something or someone is going to come around and mess it all up.   Successful companies have tools and processes that allow them to very quickly react to change and re-align on a corrected course.   I’m not talking about ERP systems or Advanced planning (optimization engines). These tools are great at making a plan but slow at re-planning when something changes. To successfully respond to changes you need tools that deliver supply chain visibility, provide the ability to simulate changes and responses, enable collaboration with your team inside and outside the company and provide alerting mechanisms to let you know when something has happened.

As you look through these four items, you may be coming to the same conclusion that I did.  Not only would implementing these processes better position you for growth when the economy turns, they can significantly improve your ability to manage through the tough economic times we are currently experiencing.  As you go through your “downsizing” , “right sizing”, “workforce adjustment” (pick your favourite euphemism). Keep these ideas in mind.  Remember that your company will likely come out of this recession and the process changes that you implement now can help ensure that your company will come through and can be stronger than ever.

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Tags: Lean manufacturing, Sales & operations planning (S&OP), Supply chain risk management, Supply chain visibility
Posted in Best practices, Lean manufacturing, Sales & operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management
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