I have noticed that the supply chain industry analyst community has begun to offer commentary and advice regarding the effects of the current financial crisis on the short and longer-term challenges that will impact our community. I have some of my own thoughts and advice and would like to touch upon them in this post.  Since I do not have to deal with the editorial police who insist on a template of reinforcing every previous piece of research, I can be a bit more open.

While it is way too early to speculate on how long this new era of severe recession with prolong itself, the time for preparation and contingency planning is well at hand.  AMR Research in its Chain Reaction blog (subscription sign-up required), indicates that the effects of this crisis will more than likely lead to higher inflation, which will provide additional challenges in overcoming higher material and input costs.  More importantly in my view, is your firm’s focus on the potential impact to certain suppliers who may not be able to overcome more stringent credit and working capital requirements in the post financial crisis recessionary era. This would include not only material, but also design and contract manufacturing suppliers as well. 

If there was ever a time for a supplier back-up plan, it is now.  Identification of strategic suppliers and maintaining collaborative as well as supportive supplier partnerships will prove to be a fundamental competency.  Having supply chain wide visibility to potential problem situations in coordinated design, supply, and demand goes without stating. In that light, it will be interesting to observe how the U.S. automotive industry with a history of financially shaky suppliers will fare at the conclusion of this era.

I further believe that dysfunctional or more stringent credit markets will make the financing of overall inventories much more challenging. This has been personally reinforced in an incident that my wife and I had yesterday. We are in the middle of a large scale renovation project in our home.  About a month ago, we had narrowed down our choices for what we wanted for bathroom tile based on in-stock inventory availability..  Yesterday when we attempted to actually purchase our choice, there was no inventory to cover our order, in not just one, but other distributors as well.  We ended up compromising on the purchase of tile that was only in-stock at one vendor. Your ability to plan for the right inventory at the right point in the supply chain will be crucially important.  I previously posted some thoughts on this subject. Believe me when I advise you that inventory risk modeling is one of the most important process tools you should evaluate for managing in this upcoming era.

I do however want to end this post on a more positive, glass half-full note.  A longstanding frustration for our community has been an observation that senior management, reacting to relentless Wall Street pressures for short-term results, has lacked the patience and discipline to provide longer-term support for the more difficult supply chain transformation initiatives, such as global expansion, overall agility in processes, and better, more informed decision-making. Previous hastily formed decisions to source supply and production in lower cost regions of the globe, without factoring the impact of localized wage inflation, or high energy and transportation costs, may have fallen prey to this mentality.   Perhaps this new era of post financial crisis that reinforces stability and consistency will bring a more balanced tolerance for allocating more realistic expectations to initiate structural change.

Rest assured that I and others will be penning more on this topic in the coming months.  What’s your view?

Bob Ferrari