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after the recession Figure 3: Long supply chains increase the risk of lost sales. an upturn in demand and being able to respond. This is likely to be exacerbated by the damaging effects of the downturn. For example, many of your ‘cheap and cheerful’ suppliers may have gone bust — precisely because they were cheap and cheerful: doubtless highly competent in meeting your current needs, but without the investment, in capital or intellect to match rapidly changing times. Logistically, this also applies. Shipping capacity, come the upturn, may be seriously shorted — carriers are postponing or cancelling new build commissions and scrapping older vessels (in itself not perhaps a bad thing). And even if ships are merely ‘laid up,’ it takes a long time to recommission and recrew. There will be under-capacity, which will drive up market rates. Domestically, much the same applies. UK figures in April suggested that HGV drivers were one of the largest classes of trade seeking to ‘sign on’ to unemployment benefit, and that is probably true across <strong>Europe</strong>. As the trade or profession has had a long-standing recruitment problem, many of those now out of work are towards the end of their careers, and may not re-enter the transport market even when things improve. Again, under-capacity will drive up rates. Figure 3 attempts to compare unit cost distributions between UK/EU supply chains 24 and those from China or similar countries. There are, of course, massive differences in many factors — cheap labour in China, lower inventory costs in <strong>Europe</strong> (because of the shorter supply chain time scales possible). Material costs are similar, as you would expect with most commodities traded globally (although China, particularly, appears to be using sovereign wealth to buy up, or at least pre-empt, future flows: who can blame them? It’s exactly what the UK did when we were top dog a hundred years ago!). The interesting bit is in ‘lost sales.’ The expansion on the right of Figure 3 shows where this submerged rock of loss lies — generalized, obviously. Different businesses will have different patterns or orders, sales, manufacturing and inventory — but the point is that we can predict, with fair certainty, that just when companies believe they have clawed their way out of the current morass, they are going to find that they can’t capitalize on this because they have, in simple terms, failed to get the stock on the shelf. How do you avoid this schoolroom error? Essentially, by taking a holistic supply www.scemagazine.com may/June 2009
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