BY MITCH MAC DONALD, GROUP EDITORIAL DIRECTOR outbound
Do you have logistics
in your survival kit?
IT WAS A HYPOTHESIS NO ONE WANTED TO TEST. NEVERTHE-
less, it appears we’ll soon be in an ideal position to see how it stacks
up against reality.
The hypothesis in question was advanced more than a decade ago
by Louis Lataif, dean of Boston University’s School of Management
and former head of Ford Motor Co.’s European supply chain operation. Lataif has long argued that logistics—or to be precise, advanced
logistics technologies developed in the ’90s—are changing the rules
of recessionary economics. Logistics technology helped blunt the
impact of the 2001 recession, he told this magazine in 2004, and it will
have the same effect on future downturns.
As for how technology kept the damage in check
back in 2001, Lataif explained that it was a matter of
averting dangerous inventory buildups.
Historically, as a recession takes hold, consumer
confidence—and hence, consumer spending—sags.
That results in severe inventory corrections as companies struggle to sell off existing stock.
The 2001 downturn departed from that pattern
because inventory levels were running well below
historical norms at the recession’s outset. During the
’90s, companies had invested in sophisticated
demand planning and forecasting technology that
eliminated the need for mountains of buffer stocks.
That kept inventories from reaching dangerous lev-
els, which averted a catastrophic backlash when the
crash eventually came. Those same technologies, Lataif predicted,
would help take the sting out of subsequent recessions.
Was he right? Given the stutter-step nature of the current economic recovery, it’s a bit too early to tell. However, recent evidence suggests logistics and supply chain management did keep at least one sector afloat during the Great Recession of 2009. A study released in the
fourth quarter of 2010 concluded that supply chain management was
instrumental in helping the retail industry survive the meltdown.
The study, the 2010 State of the Retail Supply Chain report, was conducted across leading North American retailers by Auburn University
in partnership with the Retail Industry Leaders Association (RILA).
In their summary, the researchers drew a direct line between supply
chain management (SCM) initiatives and the retailers’ survival.
According to RILA, the study found that “SCM cost-reduction initiatives lowered company expenses and [that] closer collaboration with
merchants and store operations teams enabled significant increases in
enterprise-wide operational efficiency. The con-
tinued focus on striking the right balance of
inventory availability, cost control, and customer
service allowed companies to better adapt to fluc-
tuating consumer demand.”
The story doesn’t end there. The benefits of
adopting state-of-the-art supply chain manage-
ment practices will continue to accrue as busi-
ness picks up, says Casey Chroust, RILA’s execu-
tive vice president of retail operations. “Cost
reduction initiatives introduced
by supply chain management
executives [allowed] retailers …
to tap into existing opportuni-
ties to streamline their supply
chains, lowering their bottom-
line costs and saving billions
across the industry,” Chroust
said in a statement announcing
the study’s results. “Moving for-
ward, these cost structure
enhancements and efficiencies
will enable retailers to thrive as
the economy becomes healthy
again.”
But it’s not enough just to
keep up with the latest advances in supply chain
management, warns Brian Gibson, a professor at
Auburn University and leader of the RILA study.
You have to get out in front of the crowd, he says.
“Retailers must establish best-in-class supply
chain capabilities to remain competitive,” Gibson
said in a statement. “This year, leading-edge sup-
ply chain executives are pursuing agility, shelf-
driven supply chain capabilities, and private-
label manufacturing.”
And so should you.
