Time for fl€xibility
Some 20 years ago, when I was still a student, flexibility was the hot topic in the world of business administration. It was all about one’s ability to respond to change. Of course this was important to all businesses, but it was a mystery how to go about it – they had forgotten to put that in any of our textbooks. Most businesses interpreted flexibility as outsourcing non-core processes which led to a less vertical operating structure. Transport and stock was outsourced to logistics service providers, production to contract manufacturers, contract design manufacturers or sometimes even to original design manufacturers. This meant that businesses were leaner and more flexible, allowing them to manoeuvre more quickly – at least, providing they knew where they were heading.
Now, two years after the collapse of Lehman Brothers, nearly everyone has been stung by this so-called flexibility – or the lack thereof. Suddenly, there was no manoeuvrability; instead, everyone released working capital by reducing stocks, thereby forcing a significant drop in demand. A fragmented chain contains many points where the availability of information, and hence the opportunity to respond, is limited.
Did anyone learn their lesson back then? Not a day goes by when we don’t hear about someone who is struggling with the slow economic recovery – facing shortages of semi-finished products, low stocks, low transport and production capacity – and missing out on orders as a result.
The next two years are going to make all the difference for the decades ahead: who has been paying attention and who hasn’t. Who can create flexibility in their supply chain? The first step is to ensure as much transparency in your chain as possible Not only when it comes to your customers’ requirements, but also your customers’ customers’ requirements etc. You need to have a clear picture upstream as well: the more transparency, the faster your reaction time. But this is only half of the solution.
How flexible can one be when you don’t know what to expect? A fragmented supply chain is not conducive to vertical integration, meaning we will need a new solution. One of the best solutions resides in the structure of your supply chain: stop trying to optimise (yes, you read that correctly), and instead rely on the law of statistics that dictates that supply chain costs will always have even distribution somewhere around the optimum.
If anyone has the answer, email it to us for the next column.
Jaap Willem Bijsterbosch MA is managing director of TruEconomy Consulting
