Are supply chains better prepared for an economic downturn than they were at the time of the last recession? Henry Canitz, product marketing director with Logility, assesses their current level of resilience.
SCB: Are supply chains better prepared now, versus the last recession of 2008, for what we all think is going to be the next big one?
Canitz: You would like to think so. Senior supply-chain practitioners have gone through four or five major recessions while they’ve been in the workplace, so you’d like to think they’ve learned a few things over that time. But if you look at some of the research that’s been done recently, that’s not necessarily the case. There are some indications that we haven’t learned our lesson.
SCB: What does it mean to be prepared?
Canitz: The key is understanding your industry and what the effects of a potential downturn are going to be. Then you can try to predict when that’s going to happen. We have much more data to draw on today. With our new analytics capabilities, we should be better prepared.
SCB: What’s the difference between managing a supply chain in a growth period versus during a recession?
Canitz: In a growth period, it’s all about satisfying the customer, making sure that we have enough inventory in place and are doing everything we can to satisfy the customer. Customer service is king. During a recession, cash is king. If you run out of cash, you’re out of business. You’re still trying to satisfy the customer, but you also have to look at tradeoffs. Should we launch that new product? Should we build a new facility? We need to look at minimizing our total costs so we can survive the down period, when margins are tighter and we might be facing more competition in the markets we’re in.
SCB: There’s a need to respond more quickly. How does that affect planning horizons? Are they getting shorter?
Canitz: They are. Speed is one of the biggest opportunities we have in the supply chain today, and it’s also one of the biggest challenges. We live in a 24 by 7 by 365 world. Customer expectations are higher than they’ve ever been. There’s more information at the customer’s fingertips as well, and design-to-customer cycle times are shrinking. According to research done by Gartner in 2018, the average was six months for a retailer, and four months for a manufacturer. In today’s fast-paced business environment, six months seems like a long time. And if you have a competitor that’s doing that in two months, you’re going to be at a significant competitive disadvantage.
SCB: But you can’t be agile unless you’re aligned. You have to be able to propagate demand signals and planning efforts all the way up the supply chain. How good a job are companies doing these days at pulling that off?
Canitz: Companies are learning. They’re doing a better job of that, but they still have a ways to go. There’s still too much fragmentation in the systems they’re using. There’s a lot of value to be derived from consolidating data and looking across multiple horizons. With demand sensing, you’re getting short-term information to augment the forecast. And you’re determining how to more effectively allocate inventory and capacity in your manufacturing plants.
SCB: “Demand sensing” suggests that we’re getting into the area of execution as opposed to planning. I wonder if the boundaries between planning and execution are getting fuzzier all the time.
Canitz: I think you’re right. We’ve been talking about it for quite a few years, but I think it’s coming to fruition. Planning and execution have become much closer. I don’t think you can separate the two and be effective today. You have to be able to propagate those plans through to execution. You’ve got to be able to use what’s happening in execution to drive your plans. You can’t wait to the end of the month or week. You can’t even wait until the end of the day to react to disruptions in your supply chain. Execution is driving planning, and planning is driving execution.
SCB: How should companies be preparing now for the next recession?
Canitz: Investing in your ability to predict visibility and ensure the speed of your supply chain is critical. Speed is important whether you’re in a growth environment or in a recession — even more so in a recession. Ask yourself as a practitioner: Do I feel like I have the capabilities to understand when that’s going to happen for my company, and what the impact is going to be? Do I have analytics, what-if scenarios and risk-management capabilities, to help me come up with mitigation strategies in response to a recession?
SCB: The technology tools for planning are more sophisticated than they were 10 years ago. So assuming that companies avail themselves of these solutions, theoretically they should be doing a better job for that reason alone.
Canitz: They should. We have better analytical capabilities now. We have more data to look at, and better solutions to put the data through. You can do multiple what-if scenarios. You can run simulations that prepare you for a recession. But companies today also need to invest in the ability to manage data, because it’s doubling every 18 months, and getting to a point where humans just can’t manage it anymore. You have to embrace digital transformation, so that you can focus not on the everyday task of running the supply chain, but on things that are outside of normal, and on creating value-added opportunities for the customer.