Sunday, June 7, 2009

Challenges of supply chain management during a recession

The recent recession starting third quarter 2008 has been drastic, and many enterprises have been hit hard due to the deep plunge in the sales revenue.

What started as a sub-prime debacle had created a chain reaction similar to a domino effect. The oil price dropped drastically thanks to the consumer panic and restraint on spending.

It was not easy to manage the supply chain strategic planning if the decision support system or the business intelligence were highlighting a transient decline in sales, but without any other data to justify a potential economic tsunami. Maybe a thorough regression analysis and the extrapolation could point towards a downward spiral, but top management was finding it difficult to establish the quantum of the likely damage in terms of the level of decline of sales revenue.

This made demand management a real challenge as to what should be a reasonable realistic demand for the next 18 to 24 months. This is probably why level production strategy, of producing a fixed volume month in month out, became a financial nightmare if no timely decision were made. On the other hand, the chase strategy would be able to adapt to the situation with greater ease resulting in massive costing reduction measures. With the inherent hiring and firing tactic associated with the chase strategy, many people were retrenched in order for the corporate survival. It is not easy to conclude whether level or chase strategy can be more effective, although it may be better to have hybrid strategy with multiple supply chain strategies for different products and demographics.

This “Bermuda triangle” shock has compelled us to be agile, flexible, responsive and adaptable in order to survive.

The agility methodology that has been evolving has always been advocating that PEOPLE are the most flexible, responsive and adaptable facet of a competitive enterprise. It is timely to develop the people to have the holistic knowledge and skills to innovate and improve the supply chain processes continuously to be enabled by IT solutions that can be re-configured to suit the requirements.

Education and training must be on-going to ensure the thinking process of the people do not stagnate or become complacent. There must be that “hunger” for new challenges, knowledge and skills to make human capital competitive.

Extended enterprise business model has been seen as a viable corporate strategy, more so with the unavoidable globalisation with the notion of making products andywhere by anybody credible

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