How good is your supply chain management system?

Back in December, I wrote a blog about a conversation I had with the former CEO of a data collection company. He made an interesting observation about today’s supply chains: “Everyone I talk to is amazed at how fast the spigot was turned off,” he told me. “I wonder whether our supply chain systems will respond as fast to the recovery when business turns around.”

It’s an interesting question. Ever since the Internet boom, the consulting and analyst community has talked about the velocity at which business is changing today. That, in turn, led to the idea of the demand-driven supply chain, or DDSN, a term coined by AMR Research. The basic idea is to implement systems that can capture real-time demand signals to determine what to make, in what quantities, and where in the supply chain to position that inventory. Instead of pushing product out to the supply chain, real demand from real customers pulls it through the supply chain.

According to an article in this week’s Wall Street Journal, those systems flew off the rails last fall. The consumer put its collective wallet back in its hip pocket faster than supply chain systems could react. The result: Factories were producing and low-cost shippers were shipping goods that no one wanted to buy even as the economy was slamming into a wall; U.S. inventories shot up by an unexpected $6.2 billion in the fourth quarter, according to the U.S. Commerce Department. “However good our systems are, it’s difficult to cope with the magnitude of the decline in sales that we have seen,” one economist told the Journal.

Before the slowdown, some companies were already rethinking their outsourcing strategies, and contemplating near-shoring – locating factories closer to the point of consumption to reduce lead times and respond more effectively to demand. It’s no surprise that supply chain network design is one of the fastest-growing segments of the supply chain software business. I expect both of those trends to continue.

All of which brings me back to my friend, the CEO’s, question: Will those systems respond as fast to the recovery as the decline? I’m not sure of the answer, but as someone who writes about the theory behind supply chain software systems, it’s going to be interesting to watch as they’re put to the test. 

 Let me know how your company is coping with inventory management during these times.