Manufacturers Must Brace for Global Supply Chain Uncertainty and Risk

Smart companies build risk management into their day-to-day supply-chain management processes and prepare contingency plans.

By Mark Humphlett, director, Enterprise Resource Planning Product Marketing, Infor

Triggered by Japan's natural disaster, skyrocketing oil prices, tornadoes, floods and other global upheavals, companies are gauging the resilience of their supply chains. They're determining what processes and technologies to employ to mitigate disruptions in the flow of essential supplies when an unplanned event erupts.

This type of risk-management assessment is essential today. Much is at stake, simply in terms of the millions of dollars -- and often much more -- that flows through the supply chain. You then have the impact on long-term competitiveness through a failure to deliver, or the potential damage to brand reputation from if you fail to launch a product on time or if you end up with a product recall from a material defect.

A natural disaster or major geopolitical event can stir up major headaches for supply-chain directors. But, companies should consider other, much more mundane factors and re-examine their game plan for dealing with such disruptions rather than adopting a "We'll deal with it when it happens," mentality.

Looking Beyond a Natural Disaster
Here's a case in point. In 2005, when Hurricane Katrina devastated New Orleans and the southeast coast, it proved a disaster for Lagasse Inc., a wholesale distributor, and, specifically, its call center, distribution facilities and employees and their families. In supply-chain terms, however, the hurricane had minimal impact. Lagasse didn't record any system downtime, lost less than three percent of network capacity for a few weeks and, reflecting the cleaning products it distributes, actually recorded some of its highest sales in the weeks that followed.

Lagasse had carefully prepared for a possible hurricane and was ready to take actions that included the rapid rerouting of supply from other U.S. distribution centers, switching to common carriage from owned transport and anticipating spikes in demand for certain product lines with the ability to switch supply sources quickly.

Many companies like Lagasse accept that risks -- both predictable and unpredictable -- are a natural part of operating a business. They build risk management into their day-to-day supply-chain management processes and prepare contingency plans they can employ immediately when necessary.

And what events had a much greater long-term impact on Lagasse's supply chain than the hurricane? They were all entirely predictable and largely within its control, including:

• Rapid growth, year over year for more than eight years
• Expanding and opening new facilities
• Massive increase and churn in product range
• Adding new, large customers
• Substantial changes in the supplier base
• Changing or implementing IT systems

So how do you build a chaos-tolerant supply chain?

Savvy supply-chain chiefs who strengthen the agility and resilience of their supply channels first answer several key questions, which include:

• Have the key sources of risk been identified and their impact assessed?
• Have we built a supply chain that can absorb the disruptions?
• Is risk management viewed as a one-off exercise, initiated after an unexpected event occurs, or are employees actively building risk mitigation into their everyday activities?

They also develop a plan that can be turned into a competitive weapon allowing them to take an unplanned event and turn it into an opportunity. Here are some strategies for doing just that:

• Develop networks that endure potential upheavals.
• Software tools and other technologies are available to analyze the sources of risk for your company. In the process, they can help determine where and when to make, buy, store, and move products through your networks. These tools help to evaluate different sourcing, production, transportation and inventory strategies to match changes in the business environment, such as the impact of supply disruption, single sourcing versus dual sourcing and alternate parts, for example. Companies can then make use of their assets most effectively, trim costs, reduce inventory levels, and improve customer service.
• Employ advanced supply-chain tools to assess all risks.

Companies should construct various what-if situations and test them extensively.
For instance, determine how the company would cope with, say, a three-month disruption in supply of a critical part or product. You can assess where you can obtain supplies from different vendors, and at what cost. You can figure out how much the changes could affect costs and profits and customer deliveries. These and other real-life scenarios can be tested in advance allowing you to make contingency plans.

Establish a companywide business process that takes risk into account.
Ensure the process assesses the risks and the impact to your supply chain. Involving your sales, operations and financial units in this strategic planning process will help identify and flesh out the issues. Using a comprehensive sales and operations planning process involves more than simply demand-supply balancing because it takes into consideration alternative demand-supply situations as well as their effect on profit margins and sales.

Include risk identification into your operations.
Managers should recognize what potential sources of risk could impact their part of the business and identify new ones that emerge. Risk management should be as pervasive as your quality management or your sustainability strategy. Otherwise, the assessment of risk will fail to deal with those sources of risk where the impact may prove the highest.

Developing sound risk-mitigation strategies will help you build an agile supply chain.
These strategies can deliver a huge competitive benefit and greatly diminish your supply chain risk. You should consider all the potential sources of risk to a supply chain and what to do should an unplanned event occur is no easy task. But, it's the only way to mitigate risk proactively rather than after the fact. And today's software tools and other technology make the evaluation and execution process much easier.

Standing Up in a Down Economy:Six Strategies for Improving Operations and Profits

By Steve Epner

These are difficult and unprecedented economic times. For the vast majority of businesses, the economic downturn will be painful, but not fatal. Success will depend on being able to respond proactively to the many regulatory and market changes that are coming. It will require the ability to take successful practices from the past and adjust them for new realities. The successful distributor of tomorrow will need to build on what has worked, be willing to shed things that no longer work, and be open to new ways of doing everything.

The good news is that there are a number of techniques that a distributor can use to increase productivity and lay the foundation for a more profitable future. These "fixes" are not untested or unproved. Some are from other industries and some have been around but unused. In high growth times, many opportunities for efficiency may have been delayed or overlooked as not necessary or of a high enough priority to allocate resources. Now the world has changed and it is a good time to consider how some of these capabilities may be used to improve operations.

Consider the current downturn as an opportunity to change the way things are done. Customers and suppliers are all open to new ideas and are willing to try new things. The leaders in each industry will take advantage of the environment to modify what is being done, to streamline operations, and to establish new realities that will have long term effects.

It is a good time to think about redirecting investment of time and effort to create a sustainable future. The ownership of our companies must lead the way to make sure management and employees do the right things. In the following pages, trends and the status quo will be examined. Processes will be questioned and replacements suggested.

A realistic and honest appraisal of each organization’s strengths, weaknesses, opportunities and threats is required. Then direct and deliberate steps are needed to take advantage of technologies and techniques that will propel the operation into the future. That is the secret for surviving the current downturn and laying the foundation for future success.

To read more click to this website: http://www.software4distributors.com/media/whitepapers/BSWCWhitepaper_Six_Strategies_for_Improving_Operations_and_Profit.pdf

Economic Conditions Affect Business

By Tim Reynolds
President, Tribute, Inc. and President, COSE (Council of Smaller Enterprises - Cleveland)

Well it’s official. Our economy is in a recession. Of course, economic conditions will affect different businesses in different ways and some of you may be having a great year. But for those of us that have seen our business volume turn down, it’s time for some clear thinking. This will be my third major recession as a business owner and I thought I’d share just a couple of the lessons I’ve learned along the way.

First, denial is the enemy. If your business needs to be smaller for a time, bite the bullet and make it smaller. Failing to take the steps you need to preserve your capital and match your business expenses to achievable revenues is the reason businesses fail.

Only then are you in a position to take advantage of the opportunities recessions have always provided flexible business owners. For example a competitor may stumble, or perhaps a vendor may lay off a talented employee that can take your company to a new level. You may have to lay off employees of your own. That’s painful of course, but it also gives you the opportunity to rethink important business processes. What you do now will lay the foundation for profitable growth thereafter.

Fortune's Feb 18, 2008 issue has an article written by management guru and Wharton faculty member, Ram Charan, which is still timely and offers some useful advice to weather the recession. I found a couple of his tips relevant:

1. Keep building. When the top line looks shaky and the bottom line worse, the temptation is to go after discretionary spending. Fine - but do not consider product development, innovation, and brand building optional. Sacrificing your future for a slightly more comfortable present is not worth it. If you keep building, you can come back strong.

Tribute continues to offer our customers new tools to streamline their business and cut costs. Our users determine the innovations most beneficial to the group as a whole and we implement those tools in our regular releases. We’ve partnered with WarehouseTWO to offer our customers an easy and convenient method to do inventory-sharing, enabling them to get rid of excess inventory and provide another means to fill backorders.

The "American Recovery and Reinvestment Act" has extended the Section179 tax expensing limit to $250,000 and boosts the overall investment limit from $510,000 to $800,000, so this is the year to invest in making your company as efficient and profitable as possible.

2. Communicate intensively. Get information from where the customer action is, and get it to the operating people - fast. Companies should do so routinely, of course. But they don't. It's counterintuitive but true that when the economy slows down, the pace of decision-making has to speed up, because you can't put off the tough choices anymore. The companies that are readiest to act on solid information are primed to shoot ahead of the business cycle.

Partnering with Rubber Tree Systems, Tribute now offers TrulinX Mobile and Tribute Mobile, a business intelligence and sales force mobilization system that extracts the data from our Tribute & TrulinX systems and shares it with any mobile device. In this economy, access to up-to-the-minute data is a must.

Clear thinking and an open mind are critical to small business success. Tribute is ready to help you take a hard look at your business processes, compare them against the best standards in distribution, and show you how our software can help you achieve Best Practice. We continue to invest in product development and innovation to best serve your needs. We can help you keep the “blinders” off and streamline your business so you can be ready for the good times to come.

To find out more, visit www.tribute.com or call us at 800-874-2883 and press “1” for sales.

About Tribute, Inc.

Tribute, Inc. is the leading provider of enterprise-wide distribution management software to the pneumatic & hydraulic, power transmission, belting, sealing products, automation & motion control, instrumentation and hose distribution marketplace. We specialize in providing superior tools combined with personal and knowledgeable customer support for this specific niche. Our customers are more than just a number – they are partners with valuable input that drives the direction of our product. Tribute has provided a comprehensive management solution for industrial distributors for 28 years and is an active member of FPDA, ISD, NAHAD and NIBA.