How to reel in the big cheese
How dare you waste your chief executive's time, talking about supply chain opportunities? This is of no interest to him. Surely, it is your job to deal with such matters. Now, talk to him about financial liquidity and you have his full attention. Yet you are merely talking about supply chain from a different angle ...
Until recently, the sole focus of most businesses was on sales. Everything had to contribute to more sales, bigger market share and overall growth. But with sales now slowing down, the focus has shifted to cost. Everything is now about saving money, reducing working capital and trying to preserve profitability. Added to this, there is the issue of cash flow, because the banks have stopped playing ball. Talk about that and you are definitely granted an audience with the big cheese.
Behind this major shift lie some fundamental facts that put supply chain truly in the toolkit of solutions. While businesses focused on increased sales, the cost base and particularly their inventories went up. There is now a major opportunity for companies to release this much-needed cash. There is also a trap into which many have fallen in the past: if you reduce your costs via redundancies, you also reduce your capacity to meet demand. Without a thorough understanding of supply chain dynamics, this could result in inventories going up, not down, tying up even more cash!
The trick is to make decisions that balance the three criteria: sales, inventories, and costs. Together, they impact the profitability and liquidity of your business. Modern supply chain planning processes and tools integrate the three criteria - as long as the business understands how to use them. Sales and operations planning is a good example. Run effectively, it gives you the necessary levers to reduce stocks or costs, without shooting yourself in the foot. But you have to get top management on board otherwise, it will fail.
Hugh Williams is founder of supply chain planning specialist Hughenden
