2012: Prepare for More Supply Chain Volatility

At the beginning of this year, we predicted that many overly optimistic forecasters would be proven wrong about the economy's recovery by the year's end. And here we are, in January, with a global debt crisis and slower than expected economic growth.

Volatility, uncertainty, and risk will still dominate headlines in 2012. Few signs point to the economic turn-around we all were hoping to see in 2011, meaning it's time for you — and your suppliers — to prepare for more volatility.

Companies need to take a hard look at their suppliers' health to gauge how critical each is to their success as they plan for 2012. Do you know where your true dependencies are and how to mitigate that risk? You can't build your product if a critical supplier fails. To mitigate risk, focus on the assurance of your supply: Can your suppliers deliver what you need at the right price with consistent lead times?

Lead times have increased fivefold, from an average of 12 days two years ago to more than 60 today. But don't let demand dictate your inventory strategy anymore. Because if — it's no longer a definite when — demand comes knocking on your door, you don't want customers turning away empty handed. It's wiser to think smart, not lean. A good strategy is holding reasonable inventory levels; it buys much needed wiggle room in case you missed my point above about critical suppliers.

Supply chains need more flexible, responsive, and innovative networks in order to navigate whatever “normal” looks like today. It also means that some of hard-and-fast practices need to be revisited and revised.

If sales aren't increasing your top line, start looking at the bottom line. Implementing a sourcing strategy and streamlining your processes can save thousands of dollars. A recent BravoSolution UK report pointed out how dramatic the impact can be. Every pound cut from procurement costs will improve a company's net valuation five times more than a pound added to top-line revenue. (This is almost certainly true of dollars as well.)

How do you figure out where to start? You need to understand the intricacies of each spend category and the process each contract goes through before it's signed on the dotted line. It can seem like an uphill battle, but advanced spend analysis can cut down on the process and, therefore, cut your costs.

8 comments on “2012: Prepare for More Supply Chain Volatility

  1. Barbara Jorgensen
    January 26, 2012

    Paul–dollars or pounds, the five to one ratio is pretty compelling. I'm also convinced that there is still a lot of room for improvement in the electronics supply chain in terms of savings. As you can see by some of the discussions on the message boards, the regulatory environment is creating, rather than eliminating, redundancies. That's just one of the challenges companies face in any spend analysis. Thanks for the advice. On an separate note, maybe volatility is the new normal…

  2. Nemos
    January 27, 2012

    “A good strategy is holding reasonable inventory levels; it buys much needed wiggle room in case you missed my point above about critical suppliers.”

    It is not only a good strategy but also a very professional and wise move. Holding reasonable inventory levels can help your company to have stability in those uncertain periods and to survive during the period of crisis. 

  3. ahdand
    January 27, 2012

    Also a stable inventory system will be very handy when it comes for decision making and fututre predictions. That is where the system will be checked since all the reports will be questioned by the management and if the out put is not accurate then there will be a problem.

  4. prabhakar_deosthali
    January 28, 2012

    In my opinion , in a volatile situation like this which is likely to continue for another year or so, companies should not hurry in introducing new products. They should concentrate on consolidating their market position with the existing product lines with only incremental innovations. There by they can have better handle on their inventories and better predictions on their sales volumes.

  5. Taimoor Zubar
    January 28, 2012

    I think the numbers may have been swayed away by incidents like the Japanse tsunami and floods in Thailand. Nevertheless, incidents like these have made the manufactures get used to the kind of volatility existing in the market. I think 2012 may have taught companies an important lesson on how to deal with unforeseen crisis in the supply chain.


  6. Daniel
    January 30, 2012

    Prabhakar, you are right. But it seems that market is in a stabilizing mood rather than volatile. Most of the corrections are taken place, but it may take up some time to reflect it in a sensible way.

  7. stochastic excursion
    January 30, 2012

    A buffer margin of inventory can help decouple a company's supply chain from unexpected shortages.  Adoption of this kind of practice industry-wide could help to reduce volatility in general.  The downside is that inventory could be slow to expend in the event of an unexpected falloff in demand.

  8. ahdand
    February 6, 2012

    Yes Jacob you need to give it some time but I dont agree with you on the statement that the market is stable. I see it as that its not 100% stable. There are some hiccups which needs to be addressed soon.

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