Supply Chain Solutions Matter in Upturns and Downturns (Updated)

Whether a company is going through a downturn due to a sluggish economy or through an upturn due to a growing economy, solutions will always be required to attain or sustain a high performance supply chain. Because a company's pain points may differ between a downturn and an upturn, it is essential that a supply chain solutions provider understand within which context they are approaching a customer and what pain points to focus on.

Because of the current uncertainties haunting the US economy, and by extension the global economy, most executives will be focused now on how to make adjustments while facing a downturn and will apply more scrutiny to how spend dollars are distributed. Supply chain project managers within the company must be in synch with executive decisions or, even better, try to influence them for the better of the firm. In a post from June, the Technology Evaluation Centers Blog described ways for project managers to be proactive in this regard:

"The need for a project manager (PM) to be "business savvy", especially during a recession, is critical.  The PM will have to become a crusader, a salesperson, and an influencer to fight for projects that enhance productivity and quality, or that shorten cycle times, or that have a shorter project life cycle to generate return on investment (ROI). When the economic cycle turns upward again—as it inevitably does—having invested in the improvement of quality and cycle time, within both manufacturing and product distribution, may result in a higher market share for a product. Once management has examined business processes as a way to bring about improvements, other areas of an organization’s infrastructure can be open for examination as well. The methodology that supports project management can be used in areas such as product design, by examining all aspects of a product’s features and benefits. This may result in improvements to product features unlike any of the competition’s product offerings, thus generating higher revenues for the organization."

Although the blog focuses on goods production, many of the same principles can be applied to services delivery. Executives will ask, "What is the bottom line I can bring the business down to without jeopardizing quality and innovation?" The key is for the firm to think strategically when it cuts back, as all resources, including human resources, are not equal. This should be part of an overall lean strategy that is implemented during good and bad times. My previous company, Denso, was very good at estimating the appropriate ratio of temporary/full-time works in its labor force. In slower periods, it could cut back on temporary workers and shift a percentage of full-time office workers to the production floor, or vice versa. The idea is that a lean strategy is not created and implemented when a downturn occurs, but continuously tweaked and prepared for during upturns as a way of reducing overall risk.

UPDATE: The WSJ has a nice article on Toyota's challenges in this current downturn and how it is handling its workforce being idled by lower production volumes. Titled "Toyota Keeps Idled Workers Busy Honing Their Skills", the article illustrates with specific examples what I was describing above in Denso's workforce management strategy:

"At GM, Ford and Chrysler, workers effectively are paid for not working when their assembly lines are idle, under terms of union contracts. If a plant is shut temporarily, as some were this summer, workers receive most of their pay but don't have to show up. A few attend company-paid classes to learn new assembly skills.

"At its Princeton plant, by contrast, Toyota is using the down time to hone its workers' quality-control and productivity skills. The company has pledged never to lay off any of its full-time employees, who are nonunion."

When I was at Denso, it also made the same pledge of never laying off any of its full-time employees. If the ratio of full-time and part-time employees is managed well, companies can keep the number of idle full-time employees to a minimum during slower economic cycles. But with the current dramatic downturn as the backdrop, the degree of idle workers is definitely going to be more than estimated. Both Toyota and Toyota employees reap the benefits to this philosophy:

"Jim Lentz, president of Toyota Motor Sales, the company's U.S. sales unit, said the company believes keeping employees on the payroll and using the time to improve their capabilities is the best move in the long run. "It would have been crazy for us to lose people for 90 days and [then] to rehire and retrain people and hope that we have a smooth ramp-up coming back in," Mr. Lentz said."

As for the employees:

"In Princeton, senior plant manager Norm Bafunno said he can already see the benefits of the training. Mr. Bafunno cites a Teflon ring designed by an assembly worker during the down time that helps prevent paint damage when employees install an electrical switch on the edge of a vehicle's door. In the past, the drill used to install the switch could slip and damage the paint, affecting two or three vehicles each shift. These vehicles would fail quality inspection and have to go through another process to buff the scratches, hurting the plant's overall efficiency numbers.

"Coming up with tweaks like this is known at Japanese companies as kaizen, meaning continuous improvement. This is what management hopes to extract from the months of down-time training: better quality and productivity when production resumes.

"Throughout the factory, workers sit in classrooms, repaint hazard areas bright yellow, lift weights, complete dexterity drills and get steeped in Toyota's corporate philosophy.

"Near one idle line, assembly worker Bob Mason sat with four others employees around a table looking at a flip chart with PowerPoint printouts on it. The employees went through a problem-solving module based on a technique in Toyota's production system. "This was a really good idea," Mr. Mason said of the training sessions. "Once you get out on the line, I don't want to say we veer off, but we veer off. This has really brought everyone back to square one."

"Mr. Mason, a 40-year-old former firefighter, added: "One of the major things that everyone is grateful for is that they thought enough of us to keep us here.""

When discussing what it means to be a resilient company, the above is why Toyota is the best at what it does and why it will suffer less in downturns and benefit more during upturns, the marking of a resilient business.

The TEC Blog ends the post with the following list of tips for project managers during downturns:

1. Innovate to promote knowledge exchange by encouraging team-building and collaborative efforts through relationships with coworkers and vendors.
2. Generate competition among internal teams working toward to continous improvements.
3. Don’t cut back on meetings. Meetings for brainstorming and to fire up team members’ creativity are more important than ever when companies downsize.
4. Build new teams. Business pullbacks are excellent times to pursue new ideas and projects and to get them on the drawing board.
5. Don’t insulate team members by cutting travel. Get them out in the world and exposed to new thinking. Send teams to trade shows and webinars, and encourage networking through associations, all to review costs with an eye toward eliminating unnecessary expenditures.
6. Introduce new technologies, such as business intelligence (BI) and enterprise resource planning (ERP), which will generate savings and add analytical visibility.

As many know, lean means a lot more than simply working with less. I am not a lean expert, but supply chain managers in goods firms and project implementation managers in services firms should have the foresight to develop a lean strategy far in advance of any downturn. At the same time, supply chain solutions providers should understand whether their customers have a strategy, and if so, what that strategy is to better shape their solutions to the customers' business.

During the first few months I worked for the Japanese 3PL, which had a large beverage customer for 50% of their business, the business unit dedicated to this customer had been running fat over the summer months and assumed a normal transition into Fall and Winter. However, Fall came much earlier and with cooler weather than expected, and cold beverage sales dropped dramatically and ahead of forecasts. Having had no alternative strategies in place to develop new business outside of this one customer, capacity in warehousing and transportation became highly underutilized and budgets dove into the red. The initial instinct was to cut what could be cut immediately, attempt some efficient driving practices and urge managers to develop new business. But managers were hired under the idea of mostly maintaining business relationships with current customers and basically did not have the skills required for business development under such pressures. Of course, when your largest division faces such trouble, it places strain on the successful business units--maybe key resources are pulled to the struggling unit, or idle resources moved to the successful units.

Proposals pitching supply chain solutions must take many of these issues into account and should be uncovered via a rigorous due diligence process.

Comments

[supply chain solution]

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