The document discusses tactics for staying profitable in 2009 by optimizing supply chain infrastructure. It recommends reviewing the entire supply chain network from manufacturing to distribution to customer delivery. Having a robust process to evaluate changes and optimize infrastructure will help weather economic storms and position the company for future growth. The structure of the supply chain network determines most costs, so it is important to routinely re-evaluate operations and infrastructure to improve profitability.

1. Supply Chain
Planning & Analysis:
Tactics for Staying Profitable in 2009
By Alan Kosansky
President, Profit Point, Inc.

2. Three things are certain: Death, Taxes and Uncertainty. Hopefully in 2009 you will stay far away from
death, and the impact of taxes will be minimal. As for uncertainty, it is doubtful you will be able to
avoid it in the months ahead.
After years of rapid growth, the global economy stands on shaky grounds. The majority of
manufacturers are looking for ways to cut costs and prepare for what will likely be significant shifts in
product demand. Production lines may need to be shut down, distribution centers closed and perhaps
new ones opened. The best companies will review their supply chain network from the ground up to
realign their organization to their new projections.
If you are responsible for the manufacturing, distribution and supply assets of your company, then
figuring out what to keep, what to shed, and what to acquire so as to minimize your costs and meet
your customer demand, both now and in the future, is going to be challenging. There is no simple
answer. However, having a sound and robust process in place to evaluate and make the changes
necessary will allow you to both weather the current storm, and be prepared to quickly be the first to
respond to the economic upswing which we will eventually realize.
"The structure of your supply chain network
determines 75-80%
of your total supply chain costs."
The structure of your supply chain network determines 75-80% of your total supply chain costs.
Therefore, it is the biggest opportunity to reduce those costs. Once your manufacturing and distribution
assets are in place, and your major transportation contracts are negotiated, you are limited in the
actions you can take to improve operations and efficiencies in your supply chain. The time to discover
the biggest supply chain improvement opportunities is when you are assessing, or re-assessing, the
infrastructure you have in place: manufacturing capability, raw material sourcing, major transportation
lanes, distribution facilities and delivery to customers. By having stable and robust processes in place
to evaluate and optimize your supply chain infrastructure you will be able to realize maximal cost
savings and position yourself to run a truly optimal operation -- both now and in the future.
Ironically, most companies don’t routinely optimize their supply chain networks. However, those
that do are the service and profitability leaders. Too often we are so busy with daily operations and
short term crisis, that we don’t take the time to look at the bigger picture. Unfortunately, it is often
the case that a company’s existing supply chain infrastructure is a primary cause of daily disruptions
and short term challenges. Those companies that experience the smoothest and most profitable
operations are the ones who are routinely re-evaluating both their operations and the infrastructure
in place to support those operations.
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3. Change is constantly occurring in your supply chain. Nobody needs to remind you of this given the
daily news. You need to know which changes you can impact, which ones you cannot, and how to
respond to maximize your profit. How well you respond to change will determine your company’s
profitability, and your stress level. If you have the processes and tools in place to recognize the changes
occurring in your supply chain, identify and analyze potential courses actions, and communicate the
execution plan, you will reduce your personal stress and increase your company’s profits.
Designing and optimizing a moderate to complex supply chain with multiple products requires
making thousands if not millions of interdependent decisions. Your top financial and supply chain
analysts are the best at spreadsheet analysis. They can evaluate a potential change in your business
plan or supply/demand balance and tell you the impact of a given course of action. If they are the best
of the best, they can explore maybe as many as 100 different scenarios. However, if you have multiple
products made across multiple manufacturing sites, shipping through even more distribution points,
and serving thousands of customers, there are thousands if not millions of interdependent decisions
to be made. Who’s looking at all of these options? Having the tools to effectively consider all the
options is the difference between the business with the best supply chain infrastructure and the rest.
For a large organization with a global supply chain, the cost savings could be in the tens of millions
of dollars.
"…there are thousands if not millions of
interdependent decisions to be made.
Who’s looking at all of these options?"
Modern infrastructure planning requires a collaborative effort amongst sales, manufacturing,
logistics, procurement and finance. You need the analytical tools to provide each of the stakeholders
the right view of critical decision. Good supply chain operations happen because the people in
charge of the different aspects of your supply chain are effectively communicating with each other.
• They each provide the critical data necessary to make the best overall decisions,
• They each can see the critical decisions that need to be made, and how it impacts
them, and
• They are each informed of the decisions being made and the steps their organization
needs to take to implement.
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4. Even with collaboration across all of the stakeholders, the supply chain infrastructure design
process depends on forecasts of the future that will not all prove to be accurate. Therefore the
planning process needs to include many different scenarios to ensure a robust solution that is well
positioned to yield a good return across any of the many possible futures. In 2009 you need to take
action to remain profitable in what will be lean times for most. At the same time, you want to have
the assets and capacity to respond to the eventual upturn in the economy so you can be the first
to benefit. Balancing these two competing objectives is difficult, though not impossible. First you
need to gather the best knowledge and insights into key questions:
• What will customer demand for our products be?
• What actions will our competitors take?
• What will happen to the cost of key raw materials and transportation?
Then you need to be prepared for many possible futures. We all make informed estimates
(sometimes guesses), when we plan for the future. However, those that recognize the uncertainty
of the data that drives their business planning, also explore different possible futures and evaluate
their course of action against those different possible futures. That way they are able to confidently
make decisions that will perform well across a wide range of possible futures. Having the capability
to perform this robust kind of scenario analysis is the single most important thing you can do to
prepare for both the short term and the long term.
If you really want to prepare your company to be profitable both in today’s weak economy and
in a future where things are improving and growing, then you will need to be prepared to look for
more than simplistic answers. Traditional supply chain infrastructure analysis requires so many
broad based assumptions, that hybrid solutions are almost never considered. These hybrids are
often the best way to ensure a high level of customer service at the lowest long term cost.
"If you really want to prepare your company...
you will need to be prepared to look for
more than simplistic answers."
In order to evaluate and analyze complex supply chain operations, we all make simplifying
assumptions when planning for the future. This exposes us to the risk of missing opportunities
that are combinations, hybrids, of two good alternatives. For example, rather than sourcing 100%
of a raw material from a low cost country, maybe we can achieve optimal customer service at lower
costs by sourcing 80% to the low cost provider and 20% to a higher cost and more reliable alternate
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5. supplier. Or for example, demand variation by day of week may warrant different operations on
different days of the week. Hybrid solutions are often where companies will find the optimal mix of
customer service and cost. It is also where they are likely to find a sustainable strategy that meets
both their short term objectives for 2009 and prepares them to achieve their strategic vision for
beyond 2009. Just remember that these hybrid solutions are often difficult to identify and evaluate
and will therefore require a broad team effort supported by an established and proven supply
chain network design process.
Now, models and analysis are great, but you don’t save a cent until you implement. A good
supply chain infrastructure planning process begins with good analysis and evaluation of various
scenarios to identify an optimal course of action. However, it is not complete until you have taken
the final step of implementation planning. Implementation planning must address the cultural
and organizational issues that too often prevent you from achieving the gains that have been
identified. If there is resistance in your organization to change, it may be necessary to stage the
implementation to gain credibility with quick hits before tackling the more difficult to implement
changes.
The big changes in today’s world aren’t all financial ones. In addition to the massive changes
being spurred by economic shifts, there are also significant changes occurring in the market place
that are driven by the need to be more environmentally sustainable and “green”. The first step to
a greener supply chain is an optimized supply chain…one that minimizes the inefficiencies. A
good supply chain infrastructure planning process lets you go beyond the elimination of waste to
understand the benefits and tradeoffs among the different drivers of sustainability in your supply
chain. Lowering costs in your supply chain will often include reducing inefficiencies and waste.
However, to take a more significant step towards running a greener supply chain, you will need
to analyze the tradeoffs between profit and other sustainability measures (for example carbon
dioxide emissions). Understanding the total impact of different courses of action on both profit
and other sustainability measures will allow you to make the best decisions to meet the overall
objectives of your company.
"...the best approaches to dealing with these
uncertainties are ones that have
a long track record and are
tried and true."
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6. So, as you prepare for the ups and downs of the times ahead, you may find that the best approaches
to dealing with these uncertainties are ones that have a long track record and are tried and true.
One of the few things we know about uncertainty is that the more things change, the more they
stay the same. In other words, applying solid business practices and processes that have been
used for decades and have shown their benefit in good times and bad, is likely to provide a path
of relative stability and success. If you haven’t already done so, consider two things:
• Take a long, hard and rigorous look at your supply chain network infrastructure
and be prepared to make the changes that are need.
• Implement a proven process of change that involves a broad group of
stakeholders and relies upon robust, optimization-based scenario analysis.
Following these steps will allow you to meet your business objectives during today's uncertain
times and the economic growth of tomorrow.
To learn more about Profit Point's
Infrastructure Planning and
Supply Chain Optimization services
call us at (866) 347-1130
or visit profitpt.com/infrastructure
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