Planning in Recessionary times

By: K. Srinivas from the Supply Chain Management Blog | Permalink

According to different economic studies, recession is here to stay at least for the next one year. Discretionary spendings is expected to be the most affected since people are now scrambling to meet basic requirements. Businesses across the world are remodeling themselves, trying to be as lean, tightly controlling their expenditure and keeping their focus on existing markets. Investment budgets too are the most affected which earlier used to be one of the most important tools at the hands of CXOs to improve productivity in their organization.

While the objectives of most businesses is going through a transformation, one of the most crucial pieces is planning – be it corporate planning, financial planning, human resources planning, asset planning and of course supply chain planning. By its very nature – plans can be optimistic, moderate or pessimistic. Each of the scenarios has a certain probability of occurance, and companies should ideally have scenario-specific plans. Economic conditions sometimes change very rapidly and hence a changeover plan is a must for an organization.

Some of the things that supply chain planners can do are:

  1. Customer Collaboration: With Institutional or large customers, offer them incentives to give a future view of orders. Conversion of Forecasts into order (also known as order materialization) should be closely tracked and linked to the pricing model. Organizations with direct connect to end-customer should adopt demand-shaping methodologies to goad customers towards meeting sales objectives.
  2. Vendor Collaboration: The times are the best to renegotiate terms and conditions with vendors. However, it would be essential to negotiate for flexibility, reactivity and adaptability instead of negotiating capacity and quantity. Procurement should revisit the terms and conditions to make this happen.
  3. Make vs Buy: Companies with some investment propensity, should actually evaluate possibility of captive capacity or at least portions of it. This would actually reap benefits when the economy starts looking up.
  4. Consumer Behavior: Economic data such as wage inflation and price inflation should be leveraged in econometric forecast models particularly for CPG, Hi-Tech and Automobile sectors. It is even more crucial to understand the relative importance a consumer attaches to your product, whether it is a component of discretionary or non-discretionary spend and also track the statistical correlation between sales and the different economic metrics.
  5. Leverage the virtual channel: Connecting with your supply chain partners is even more crucial and keeping a democratic process of information dissemination is the call of the day. In such a situation the virtual channel would play a very important role.

With the economic situation becoming lot more volatile and unpredictable, organizations of today would need to straighten out their enterprise reporting systems making sure that the right metrics are getting measured the right way to help make right decisions. For example forecast model is not about how accurate you are in measuring forecast vis a vis historical sales. Rather it is about how much explainables and unexplainables you see in the order data. The better we understand the data, the better off we are in projecting the future.

Darwin’s theory of survival – only the fittest survive has very interesting parallels with the corporate world. The species that negotiates the vagaries of nature, also plans well in terms of when it should hibernate, migrate to greener pastures or even collaborate to survive. The days that we see today will probably filter out the best of the lot who can take on next generation of challenges.

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