Never Let a Good Recession Go to Waste

By August 27, 2019Beyond Supply Chain
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The canaries in the global economic coal mine are coughing: Singapore (year-over-year GDP down 3.4%), Germany (year-over-year GDP down 0.1%), Elkhart, Indiana … Wait, what?

Elkhart, the recreational vehicle (RV) capital of the world, has been an economic bellwether for decades.  Logic dictates that when people stop buying and improving their RVs, it’s a sure sign the economy is slowing. With U.S. wholesale RV shipments down more than 20 percent this year, some in this Midwestern town believe a broader recession is on the way.

Many of you have told us that your businesses are slowing, or in some cases, shrinking. Last month at Gartner’s annual Leaders Forum event, which hosts CEOs, COOs and CSCOs, we led a roundtable discussion on supply chain risk and opportunity management. There was plenty of discussion on cybersecurity, new sustainability regulations and the business threat of “alternate facts” not grounded in science. Curiously absent were hands raised to claim the next recession as a critical risk.

Why is that? Thanks to the Great Recession, all of the leaders in the room had not only lived through an economic downturn, but the most significant one in generations.

“Cost Optimization” is Often Suboptimal

It seems that everyone has a playbook to address the next recession. But is it the right one? The reality, when we poll supply chain leaders about “cost optimization,” is that many suffer from pursuing short-term gains at the expense of longer-term business value. There is also a knee-jerk instinct at many companies to “give everyone a haircut” through across-the-board cost reduction targets. To be clear, this is the antithesis of optimization.

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A Better Alternative

By contrast, while leading supply chains dislike downturns as much as the rest, they tend to thrive in leaner times by embracing the challenge and leveraging the environment to their advantage.

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Three key differentiators for supply chain leaders facing a slowdown are strategic portfolio management, leveraging top-down pressure to reboot stalled change initiatives, and capturing markets through innovative models and capabilities acquired via mergers and acquisitions (M&A).

  • Strategic Portfolio Management: While budget cuts will feature for most supply chains over the next two years, organizations that truly leverage a zero-based budgeting (or “ZBB”) approach to investment will fare better than their peers. Line-item rejustification of operating and program budgets allows for clarity on priorities and frees cash to reinvest in talent and assets that become less costly and constrained during downturns. This is also a great time to double down on supply chain capabilities that improve the customer experience; raising the bar, when competitors may struggle to keep pace due to their own budgetary challenges. When did Amazon pull Kiva Robotics out of the market to up its warehouse automation game? It was 2012, not 2018.
  • Burning Platform for Change: Having trouble establishing a product portfolio analysis process with commercial partners, when you know that many of your long-tail items are money-losers? Been spoiling to streamline decision-making processes by constraining the amount of time, information and people involved? The silver lining of systemic cost and cash pressures is more receptive partners, concerned with maintaining business line profitability and prioritizing where they spend their time. Innovation loves constraints!
  • Innovation-Driven M&A: Large companies are, by nature, often slower (read: more bureaucratic) than startups and therefore risk disruption in the marketplace. Exhibit A for this phenomenon are the shuttered doors and diminished foot traffic of the traditional flagship stores at your local shopping centers. More-savvy, large companies co-opt startup culture and capabilities through strategic acquisitions. They leverage M&A to capture new markets, transform customer experiences, reshape cultural DNA and enhance supply chain capabilities. Think Unilever buying Dollar Shave Club and emulating its streamlined new product introduction process for other product lines. Or McDonald’s buying Dynamic Yield, a startup that provides algorithmically-driven “decision logic” technology to customize its drive-thru menu offering to local tastes and times of day.

Never Let a Good Recession Go to Waste

In the near-term, the reality is that the global economy will almost certainly get worse before it gets better. The real question is: As long as you’re running this race, why not make the best of it and take the inside lane to slingshot ahead of the competition?

Stan Aronow, VP Distinguished Advisor, Gartner Supply Chain

 

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