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Managing   Supply   Chains   in   a   Recession
Dr   Peter   Baker
Hi,   I   am   Emmanuelle   Clément,   Alumni   relations   Manager   at   the   School   of
Management   and   today   we   are   going   to   look   at   how   Supply   Chain   should   be   redesigned   to   cope   with   the   recession.
To   help   us   to   do   that   we   have
Dr   Peter   Baker   in   the   studio,   a   Senior   Lecturer   in   Logistics   and   Supply
Chain   Management.
So   Peter,   what   are   the   challenges   faced   by   supply   chain   managers   in   a   recession?
What   normally   happens   in   a   recession   is   that   markets   collapse,   sales   fall,   profits   go   down   and   eventually   an   edict   comes   down   from   above   on   supply   chain   managers   just   to   reduce   costs.
However   at   the   same   time   as   that   edict   is   arriving,   unit   costs   tend   to   be   going   up   naturally   as   there   are   fixed   costs   in   the   supply   chain   for   warehousing,   for   fixed   vehicle   routes   that   must   run   every   night   whether   the   vehicles   are   full   or   half   full.
There   are   of   course,   actions   that   can   be   taken   to   reduce   costs.
At   the   extreme   you   can   offer   nil   service   for   nil   cost.
So   for   example,   you   can   close   warehousing,   but   even   if   you   can   recover   costs   from   that,   which   is   somewhat   doubtful   because   you   probably   cannot   release,   you   have   got   redundancy   payments   etc,   but   if   you   can   close   warehouses   and   cut   some   costs,   then   that   will   just   cut   service,   responsiveness   to   customers.
Similarly   with   inventory,   if   you   cut   inventory,   then   that   will   reduce   stock   availability   to   customers.
And   also,   if   you   ship   by   sea   freight   rather   than   air   freight   then   that   will   reduce   responsiveness   to   customers.
So   supply   chain   managers   find   themselves   in   a   very   difficult   position,   having   to   cut   costs   in   a   time   when   costs   are   naturally   rising   because   of   lower   throughputs.
Is   there   something   that   supply   chain   managers   can   do   about   this?
Yes.
Well   the   lower   throughputs   do   cause   a   change   in   the   operating   environment   and   supply   chain   managers   may   be   able   to   take   advantage   of   that.
For   example,   in   warehouse   previously   for   their   larger   customers,   the   warehouses   may   have   been   picking   by   order   –   an   order   picker   going   round   and   picking   the   whole   order   at   once   –   whereas   in   a   recession,   with   orders   being   smaller,   it   may   be   much   more   cost   effective   to   batch   those   all   together   and   do   a   batch   order   pick   and   sort.
Similarly   on   inventory   there   is   a   change   in   operating   circumstances   there,   a   company   may   be   keeping   fast   and   medium   moving   lines   closer   to   customers   of   many   regional   distribution   centres   and   centralising   just   their   slow   movers.
But   in   a   recession   with   lower   throughputs,   many   of   the   medium   movers   may   actually   have   become   slower   movers   and   therefore   the   boundaries   should   be   looked   at   again   and   maybe   they   should   be

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Dr Peter Baker centralised.
And   also   on   transport.
Where   there   were   direct   loads   before   of   full   vehicle   loads   from   factories   to   customers,   maybe   with   lower   throughput   it’s   more   cost   effective   to   consolidate   transport   or   even   to   share   transport   with   other   companies   or   even   competitors,   in   order   to   reduce   costs.
So   supply   chain   managers   can   take   advantage   of   the   changed   situation   in   a   recession,   but   even   with   these   measures   they   are   unlikely   to   completely   counteract   the   naturally   increasing   unit   costs   with   a   lower   throughput.
So   what   should   supply   chain   managers   do?
Can   they   be   more   proactive   in   any   way?
Yes.
Businesses   need   to   recognise   that   the   marketplace   has   changed   in   a   recession   and   need   to   reformulate   strategy.
A   traditional   way   of   doing   is   for   the   business   heads   to   formulate   the   strategy   and   for   this   then   to   be   fed   down   to   the   functional   areas   such   as   retail,   manufacturing,   supply   chain,   etc.
What   I   would   say   is   that   supply   chain   managers   need   to   be   at   the   table   in   that   strategy   formulation.
For   example,   in   addressing   which   market   segments   should   be   attacked   or   should   be   retrenched   to,   then   the   supply   chain   infrastructure   may   be   a   key   competitive   advantage   or   disadvantage   to   that   and   therefore   supply   chain   managers   need   to   be   there   to   advise   on   these.
Similarly,   looking   at   critical   success   factors   for   different   market   segments,   then   many   of   these   may   be   supply   chain   related,   such   as   inventory   availability   or   on   time   delivery,   for   example.
It   also   needs   to   be   recognised   that   the   behaviour   bias   has   changed,   whereas   previously   they   may   have   been   looking   for   collaborative   relationship   or   quick   response,   now   they   may   be   looking   at   cost   effective   supply   chains   and   therefore   the   business   needs   to   recognise   that   customers   have   moved   segments   and   each   of   these   segments   needs   to   be   costed   by   supply   chain   managers   in   ways   that   can   be   easily   understood   by   marketing   and   merchandising,   for   example,   in   cost   per   unit   so   that   decisions   can   be   made   in   how   to   actually   service   these   new   customer   segments.
Also   in   working   through   and   looking   at   the   future,   different   business   scenarios   need   to   be   addressed,   because   nobody   knows   how   the   recession   will   evolve.
So   for   example,   market   segment   A   may   reduce   by
50%,   supply   chain   managers   need   to   be   there   to   say   how   fixed   costs   will   impact   on   that   and   what   future   unit   costs   will   be   and   having   retrenched   somewhat,   then   you   also   need   to   recognise   the   scenario   of   future   recovery   and   also   possibly   of   a   major   competitor   failing.
And   how   would   you   then   accommodate   in   the   supply   chain   and   servicing   customers   that   you   are   taking   from   that   major   competitor.

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Dr Peter Baker
So   supply   chain   managers   need   to   make   sure   that   they   are   at   that   table.
So   in   summary,   I   would   say   that   there   are   three   ways   of   responding   in   a   recession:   there   is   just   the   pure   cut   costs,   which   unfortunately   is   where   many   supply   chain   managers   find   themselves.
Secondly,   to   recognise   that   the   lower   throughputs   caused   by   recession   are   actually   leading   to   possibilities   for   operational   improvements   and   supply   chain   managers   need   to   identify   those.
And   finally,   and   the   one   that   we   would   recommend,   is   to   relook   at   the   market   place,   to   resegment   the   markets,   to   reconfigure   the   supply   chains   to   actually   win   those   market   segments   in   the   most   cost   effective   way.
Is   there   anything   else   that   can   be   done?
Well   recently   we   actually   held   a   taster   day,   an   open   day,   at   Cranfield   looking   at   supply   chain   in   the   recession   and   speakers   there   looked   at   many   other   aspects   such   as   reducing   complexity   in   the   supply   chain   –   either   in   terms   of   product   range,   or   process   complexity.
Looking   at   supply   chain   risk   –   for   example   what   if   a   major   supplier   should   fail   or   go   bankrupt.
Looking   at   how   to   be   sustainable,   how   to   continue   green   policies   whilst   being   profitable   in   a   recession.
How   to   examine   individual   customer   profitability   and   have   complete   visibility   of   that.
So   there   are   many,   many   challenges   faced   by   supply   chain.
Many   of   these   are   strategic   in   nature   and   supply   chain   managers   therefore   need   to   be   at   the   board   level   table   in   order   to   help   businesses   make   those   decisions.
OK,   thank   you   very   much   Peter   for   sharing   these   insights   on   how   to   manage   supply   chains   in   a   recession.
Thank   you.