Supply Chain Leadership in Tough times

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What do Gandhi, Winston Churchill, FDR, Deng Xiao Ping, Bismarck, and Abraham Lincoln have in common? Despite the differences in times, places and circumstances, each of these took a large and divided group of people staring despondently in the face of an abyss and – with gritty determination, inspiration and pragmatism – steered them to relative safety and prosperity. These were the true leaders for the tough times.

No doubt, these are tough times. Reactions are quite predictable. Economists are debating whether this is technically a recession or a depression. Politicians are debating which groups of people iot platform. deserve their largest largesse. Populations are moving from denial towards anger. Meanwhile Business people are wondering who will survive and how. In this article, rather than focus too much on technical definition of the economic situation, or on public psychology, or on politics of the band-aid handouts, we will focus on way out of business peoples’ dilemma. In doing so, we will try to look well beyond the simplistic two-by-two matrices and banal three-arrow-diagrams traditionally used by management consultants everywhere.

Tough times call for different style of leadership. Why? – We will quote one of our dear departed teachers to illustrate the point. Capt. Rewari, our navigation instructor in Merchant Navy Officer’s course used to remind us before every training session “when the sea is calm and in vast open ocean with little traffic – even your girl friend and my wife (both untrained navigators) can navigate a super tanker with very little training. But I am preparing you for the times where your skills will be truly tested – e. g. in treacherously narrow waters of Malacca straits in a tropical squall with shipping density of nearly 100 ships per square mile, and perhaps pirates chasing you. ”

To find the way forward, we have to first briefly examine the dilemma currently faced by businesses – large and small. On one hand, in the absence of credit, all but most essential demand is drying up. Suddenly, even the well heeled are warily watching their dollars (and Yen, Yuan, Euros, Pounds and Rupees) lest they get caught without liquidity. But they are in minority. The majority is already facing a liquidity crunch – as debts are called in, expenses, overtimes and allowances are cancelled, and in some cases, jobs are lost. On the other hand customers are becoming even more demanding. While the margins are slipping, economies of scale and scope are eroding, surplus of production and inventory capacities is growing and the work-force is insecure and resigned. And this is only the first wave of the financial tsunami. Some analysts expect the second wave to be a lot more destructive.

So what has Supply Chain Management got to do with all this? We will come to that in a minute when we examine what we believe is the way out of the current dilemma. But first let us see how Supply Chains are ‘mutating’ as a result of the current economic climate. While a detailed examination of this topic is deferred to our article in the next issue of this magazine – we outline 4 prime DNA mutations in the Global Supply Chains that can likely result from the GFC (Global Financial Crisis):

1. Stifled Monetary Flows: Out of the three flows that constitute the Supply Chains, perhaps the monetary flow is the most vital. The adage goes money is the life blood of commerce. As the liquidity crisis bites, banks stop honouring each others’ Letters of Credits, the international trade grinds to a halt. Cargo stock piles at unlikely locations, shipping services are severely disrupted and all finely tuned supply chain planning and scheduling is out of the window. While the current legal mess will take many years to sift through, we suspect this will leave a permanent mark on the Global Supply Chains. Akin to permanently constricted blood vessels from a high cholesterol diet – this will expose the future Global Supply Chains to frequent threats of systemic seizure, lowering the velocity of trade and perhaps increasing the transactional burden. We will discuss the full implications of this in the detailed article.

2. Continual Price Discovery: Prices are starting to creep down again after the boom. In fact, with overcapacity in global production capabilities in most industries, inventories piling up, and varying propensity to price at marginal costs it is no longer easy to ascertain what is a ‘good’ price to pay – even for a short term contract, let alone for longer term contracts. We believe this on-going price discovery will accentuate as the GFC turns into a GEC (global economic crisis) and plays out over course of time. A stable price regime will only emerge on the other side of the crisis, perhaps after significant time has elapsed. While some consumers (such as those in Brazil, Argentina, Mexico, Indonesia) are used to gyrating prices, most other consumers will take time to adjust their consumption behaviour. Meanwhile, procurement directors, purchasing managers and buying offices face a thankless task akin to picking a number out of a hat and praying that their organizations will make money at that purchase price. We will discuss the full implications of the price discovery dilemma facing supply chain practitioners in the detailed article.

3. Potential Market Failures: This is the condition where despite sufficient demand and supply, the market does not clear at any price because of many reasons including disparate expectations on both side, and, political meddling. It is estimated that one of the key reasons for food shortages during the great depression was market failures rather than drought or lack of growing capacity. Add to this the instances where supply chain ‘partners’ are reluctant to trade with each other due to doubts about each others’ solvency (a recent case that comes to mind in this regard is the US retailer chain Circuit City which recently filed for bankruptcy due to this reason). Implications for the supply chain managers are many fold. Multi-sourcing will stand the single vendor strategies of last two decades on their heads. Supply Chain Risk Management takes a completely new dimension. Business strategy starts dictating horizontal and vertical integration at the same time – both difficult to execute in the times of a credit crunch. We will explore these impacts in a more detailed article.

4. Just-in-case Supply Chains: Last three decades were a continuous march towards Just-in-time (JIT). Even in countries where conditions were widely different from Japan, experts – academics, consultants and headquarters -admonished managers to shun Just-in-case (JIC) and move towards JIT. Looks like the time has come for JIC to take its revenge. Why? – with growing uncertainty about your suppliers, your bankers, your shippers, your logistics service providers, and countless others cogs in the supply mechanism that makes it possible for materials to arrive at your door in a pre-coordinated manner, you would want to keep buffer for any of them defaulting on their promise at any time. So does that mean all supply chain planning, scheduling and co-ordination is going to be worthless going forward. No, it is just going to become a lot more complex. Complexity that will be far beyond the capacity of any of the current supply chain planning software or tools to resolve. Human dimension is once again going to become paramount, but this time in adjunct to the best supply chain planning tools.

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