The recession gives companies an opportunity to drive “radical change” in their supply chains, according to a leading British consultant in the field.
Alan Braithwaite, chairman of LCP Consulting and a visiting professor at Cranfield School of Management (pictured), said that in a situation where firms could no longer rely on growth to generate cash, there was a need for “fitter, leaner and more agile” supply chains to plug the gap.
Speaking at the launch in London of a collection of essays on supply chain practice in the downturn published by the Management Consultancies Association (MCA) – a UK trade body – Braithwaite said there was potential for a “new competitive business model rather than just slugging out recession in the old way”.
He offered five “maxims” for how firms could do this. The first was to reduce what he called “unprofitable complexity” – either losing customers that were too costly to serve or charging them more. Research had shown that, typically, 15 per cent of customers in the “tail” eroded more than 50 per cent of a company’s profit potential.
Second, firms needed to build customer service excellence into the supply chain, so that the things valued most by customers (rather than internally) were given top priority and they positioned themselves as preferred suppliers.
Third, companies needed to design, execute and plan for agility. Asian supply chains were “all running late,” said Braithwaite, “because the West has frozen”. The speed at which firms could respond to fluctuating customer demand, while managing inventory and capacity prudently, was “absolutely critical”.
His fourth maxim was to synchronise and integrate supply chains to eliminate waste. Despite more than quarter of a century of lean thinking and practice, there was still plenty of waste that could be taken out, even in the supply chains of world-class companies, Braithwaite argued.
And fifth, firms needed to collaborate to leverage performance, positioning themselves to be preferred customers to their suppliers. He cited the example of the CPO of a big electronics firm he had met recently in Geneva who insisted that his business was the most profitable for suppliers in the industry, but that he also enjoyed the lowest total cost.
By forging strong relationships and always making himself available to talk to suppliers, this CPO ensured that “his suppliers will always be there for him before his competitors”, Braithwaite said.
Speaking at the same event, Tim Lawrence, the leader of PA Consulting’s supply chain services practice, noted that supply chains were under severe pressure before the downturn, as a result of increasing customer demands, a growing array of products and competition from lower-cost regions.
There was a “need to think about the supply chain differently”, he agreed. It was all too easy to take too short term a response and seek to take out costs “in the wrong place” – whether in production capacity, payment terms for suppliers or elsewhere.
Alan Leaman, chief executive of the MCA, said that a recent survey among its members had found that at least 40 per cent of client companies had not adapted their supply chains in response to worsening economic conditions.
Only half had tried to involve their suppliers in cost-reduction efforts and just one in eight said they planned to get through the recession by working more closely with suppliers.
Richard Bacon, a Conservative member of the UK Parliament, told the audience that Lotus, the British sports car maker based in his constituency, had made real efforts to help component suppliers weather the storm – “essentially becoming a banker to them”.
But he also gave the example of a US-owned electronics firm that supplied Ford, which reported “terrible terms of trade and procurement processes”.
Bacon argued that big firms like Ford had a responsibility to make collaboration real by instilling it in everyday business practices, rather than just uttering fine words about it.
