When A Global Event Hits, The Playing Field Tilts
A global pandemic brings with it trillions of dollars in costs. In conversations, I have heard comments comparing Covid to the Spanish Flu, a 100-year event. Unfortunately, markets are being hit by negative events with a lot more frequency. Natural events, geo-political landscape shifts – all are impacting how we are able to do business.
Most manufacturing businesses have shifted to Lean systems that rely on processes that reduce working capital deployment. As a result, there has been a greater focus on the expense of inventory, storage space, and inventory turns. If you compound inventory availability with a breakdown in forecast drivers and longer supply chains, the disruption can be catastrophic. Conversely, holding safety stock will help as problems arise, but the cost is not just holding and storing, but also having the liquidity to replenish.
Having a supply chain that flexes around changing volumes and multiple sites and channels is an advantage. Having the digital capability to understand your own assets, capacity and availability is essential also. Increased open communications and monitoring of demand factors can help suppliers support their customers.
The increase in communication has to go both down the supply chain and up into the customer base. Not all customers are created equal, so you need to revisit your ideal Customer Profile. Focus on least risk, capability, and capacity to supply, highest variable contribution margin, and, the attractiveness of end markets. Once established, rank and rate them and you will probably learn something through the exercise, for example:
- Price - is the price matching the value of your product
- Share of Wallet - can we do more with our best customer
- End Of Life - are our products still relevant
- SKU Rationalization - can you reduce your offering without impacting ideal customers
- Payment terms - look for improvements to reduce working capital
- Sales Agreements - openness is a two-way street
This process will challenge the team; asking for more information, reducing your range, or adjusting pricing can be contentious. The benefits can be realized quickly though and will support a reduction in working capital and be more in line with your key customers. Additional benefits might come through insights into new products, better forecasting, and a better customer experience as your communication now is of higher value.
Forecasting is more essential than ever before. Many companies have relied heavily on historical data, new product launches, market conditions, and sales input and equate that to a forecast of units by product type.
Historical data post-pandemic has diminished value. Sales have a greater responsibility to understand their existing and target accounts. A forecast based on revenue and units has to be developed, while operations and supply chains need this visibility to hit key performance indicators. Detailed sales agreements by part number are essential for all key accounts and targets, which include seasonality and expected time.
Forecasts without this level of detail generate false volume indicators and will be damaging.
Access the data you generate every day to help drive insights. Get that data in a CRM system and use it to produce better business decisions. Running an executive S & OP process used to be difficult to manage. Today, with support from the right consultant, accessing data and insights in near real-time is a reality. Not progressing toward a digital transformation can result in increased competitive pressure and loss of core business.