Economic and financial gurus have predicted that the recession will bottom out very shortly and recovery will start by end of 2009. Not sure if it has a sound scientific base but commodity prices and stock markets are on upward trend.
Unlike the way we were caught unaware with recession staring at face, we should start making plans for recovery of economy. When recession hit all of us, we were stuck with huge inventories, capacities and resources. During last 6 months we have learnt to live with recessionary trends, used our wisdom to liquidate inventory and unwanted capacities & resources. We have learnt to take a conservative approach to demand and changed our mindset that allows losing sales opportunities here and there rather than blocking cash in resources. We have shed all possible buffers and extra flab. Many suppliers of materials have closed their shops and skilled manpower has been lost.
Should the recovery starts by end of 2009, as projected by many experts, are we prepared to embrace it without any major hiccup? The one who is prepared for recovery, is certainly going to gain market share and competitive edge in future. Imagine a situation that there is increased demand from the customers but we can’t meet the demand because we either don’t have enough capacity or material suppliers for the additional demand. We will be caught on the other side of the “bullwhip effect”. What are the options available with Supply Chain? Should we start building extra resources hoping that recovery will happen?
Let us explore the possible ways that we can adopt without much of risk. We categorize these under External Actions and Internal Actions.
External Actions
1. Check macro indicators: Certain indicators like construction activities, prices of metals and other commodities, manufacturing index, import and exports indices can provide a view on overall economy.
2. Maintain a close contact with customers: It is your customers who can give you first signals of recovery in demand. It is very likely that they would have also scaled down their level of operations during recession. Look for these signs:
-If you are in consumer goods business check if there are frequent stock outs at shelf or Distributors’ warehouses.
- Erratic order pattern from the customers, with intermittent & frequent spikes in demand. It may happen because of the reduced capacity of the entire downstream pipeline not able to cater to increased demand.
- Customers placing more frequent orders albeit each order is small.Increasing number of delivery or service complaints from the customers or consumers.
- Last but not the least, the mood and behavior patter of your key customers. If they look more relaxed it means that they are able to recover their money better but not yet ready to invest back in the business.
3. Monitor unusual increase or decrease of imports and exports of the products in similar category. Due to increase in local demand and inability of domestic suppliers to meet the demand, the imports may increase. Similarly increase in demand in the country may result in lesser availability for exports. It can work both ways.
4. Start talking to suppliers who had either scaled down operations or closed shops. They should re-oil the equipment that was shut, line up requisite manpower (not necessary employ them right away), talk to their bankers for increasing credit limits. If that doesn’t work out, start scouting for new suppliers who can be developed at a short notice.
5. The same holds true for the logistics and other service providers. They will need to revive their capacities to handle higher volume of products.
Internal Actions
1. Evaluate spare manufacturing capacity & upward flexibility. Build “what-if” scenarios and options e.g. whether to revive own capacity or outsource till the time there is sufficient confidence or sustainability in demand.
2. Review stocking policies for the raw materials, finished goods for various levels of demand and estimate cash required. Make plans with finance teams to prepare for the most likely scenario.
3. Watch out for likely inflationary trends in commodities and revise your budgets accordingly.
4. Most importantly, make plans to retain talent because revival will also lead to more job opportunities.
Let us hope that this prognosis of recovery by end of this year really comes true.
