Help! Lack of demand! Oops…lack of supply.

Now what? Having spent the past year doing our utmost to survive a lack of demand, we now find ourselves under attack from a different direction. The first-quarter results have been announced, and  companies in the Netherlands and northern Europe can see the first light of optimism dawning on the distant horizon. Turnover is up significantly on last year (that was the easy part). The fact that sales figures were often better than predicted can be put down to an overall cautious approach to forecasts for 2010 and 2011.

After a hectic year in which the chain was continually having to be adjusted in reaction to a record lack of orders, which should come as good news and should also relieve some of the pressure on the supply chain manager, but in reality the opposite is true: there are numerous cases which illustrate that the situation is far from stable.

Last year, for example, a global player in the field of medical equipment temporarily halted production at a number of its factories in order to align its manufacturing levels with the reduced level of demand. This month, its factories are at a four-week standstill again, this time due to delivery problems with a component (the printed circuit board). Cause of the problem: the manufacturer was too late in reserving the required capacity at his supplier.

Another similar example: a manufacturer of animal feed sells more than forecast, but this turns out to be a problem rather than a bonus. Since the usual raw materials were not available for the products required, the manufacturer had to source more expensive alternatives in order to produce the goods the customer wanted.

One final example: a manufacture of high-end consumer goods is not able to supply the European market for the next two months, due to the fact that there is no sea container capacity available for transport from the Far East to Europe. Apparently, other suppliers have already reserved all the available space for themselves.

It is not nice to hear that the supply chain management sector is still struggling to cope with such chaotic situations. These examples serve to illustrate the current level of fear and uncertainty (neither of which have been useful emotions when it comes to predicting the future), compounded by the fact that the anticipation of the need for supplies has been too cautious – a kind of reverse bullwhip effect: everyone is slightly more pessimistic than the previous link downstream, leading to shortages.

Just to rub salt into the victims’ wounds, those competitors who did scenario analysis and took conscious (limited, calculated) risks were able to purchase components, ingredients, whatever they needed, at some of the lowest prices we’ve seen for years. The moral of this story: never be tempted to simplify a supply chain management problem or view it in isolation, because, like a boomerang, it will always come back.

 Jaap Willem Bijsterbosch is managing director at TruEconomy Consulting