Should we do strategic planning for our supply chain?

Filed in archive General on July 15, 2009

The answer is yes according to INSIGHT, an international provider of supply chain planning solutions. The company suggests that every firm should be using strategic supply chain planning tools on an ongoing basis, whether in times of economic turbulence or prosperity. Many industries today, from auto to chemical, struggle with their supply chains: excess inventories, collapsing demand, struggling or bankrupt suppliers, fluctuating fuel prices, environmental mandates, and so on. Many are saddled with supply chain strategies that were ill conceived from the outset but whose shortcomings became apparent only when stressed.

In a press release from PRNews Wire, Jeff Karrenbauer, president of INSIGHT commented: "Apart from the obvious issues associated with capital and liquidity, General Motors is facing a classic supply chain strategy/redesign problem," ..."Over the next few months they must decide which suppliers to cut loose and which to retain, which worldwide manufacturing facilities to close and how best to utilize the survivors, how they will continue to distribute product (railheads, distribution centers, ports and so on), which brands, models and dealers to retain and which to close, how much inventory to slash. This process once again emphasizes the need for companies to have in place rigorous, ongoing programs for corporate strategic planning that deal with issues of expansion, contraction, contingency planning, risk, and so on, preferably under a comprehensive corporate profit maximization umbrella that includes all of operations as well as marketing."

Without a strategic plan, companies are forced to rush to judgment without adequate preparation and run a significant risk of making costly errors. The case of General Motors is especially troubling as they speed to make decisions with respect to international outsourcing, dealer closures and according to new GM Chairman Edward Whitacre, Jr., "a shuttering of plants." Adds Karrenbauer, "There is no question but that GM must slim down its entire supply chain, from suppliers to dealers. The issue is how they go about it. For example, the outsourcing decisions are especially vulnerable to the classic myopia of focusing on comparative labor costs. A proper analysis would look at all relevant factors, including procurement, manufacturing, transportation, warehousing, various types of inventory, duties, taxes, port handling charges, flexibility, responsiveness, risk, worldwide markets, profitability of brands, markets and channels and so on, essentially simultaneously. Challenging, yes, but it's the right way to do it and with the amount of money and jobs at stake, nothing less should be acceptable."