Daily Archives: April 12, 2009

Downturn Survival Strategies from PWC

The Global Supply Chain Council recently published a piece by Robert Barrett, a Director in PricewaterhouseCoopers that, for the most part, had some great strategies to survive in a downturn. Considering that it will likely be at least six months, if not eighteen, before we start to claw ourselves out of this recession (longer if companies decide to stay dumb and wait until natural selection gives us yet another dead company), they’re definitely worth yet another review.

It’s important to remember that recessions create winners as well as losers AND companies that effectively manage the downturn have a higher likelihood to emerge more quickly during the upturn (and win big).

  1. Focus the Business
    During a downturn a clear focus on the key business drivers is essential to ensure resources are allocated to those areas that deliver most value to the business. Three tactics you can use include:

    1. Product and Item Rationalization
      Simply put – Go Lean! Considering that, in an average organization, up to 30% of products are actually loss-generators when you correctly allocate direct and indirect costs, focusing on core, revenue generating products can quickly turn a balance sheet from one that’s in the red to one that’s in the black.
    2. Scrap Special Trade Relations and Promotions
      Up to 75% of promotions lose money and fail to generate long-term sales and only lead to reduced forecast accuracy, complexity, and management cost.
    3. Customer Profitability
      Focus on the customers that you can impact significantly while making a reasonable rate of return. In some companies, up to 25% of customers are actually loss-generators. They should be weeded out and the resources re-allocated to your most profitable customers.
  2. Generate Cash
    1. Optimize the Order-to-Cash Cycle
      Inefficiencies leave cash on the table and sub-optimal credit decisions cost you and your customers.
    2. Optimize the Procure-to-Pay Cycle
      Inefficiencies increase processing costs and result in the loss of rebates and early payment discounts. Inefficiencies also result in delayed payments to suppliers, forcing them to borrow at unfavorable terms, which increases their overhead and ultimately increases your costs.
    3. Tie Forecasts to Demand Drivers
      Excessive Inventory is a big drain on cash, and lost sales are a big drain on revenue. Fix them.
    4. Implement all identified 3X+ savings opportunities that can be realized in the next 12 months.
      Everyday I hear of yet another company hemhorraging cash who has decided to delay yet another opportunity to generate a 3X, 5X, 7X, or 10X return because it will require a small investment of cash up-front or prevent them from reducing head-count, which is NOT a sustainable method of cost reduction. Considering that many service providers are now offering pay-per-performance models, where you don’t pay until the contract is signed or the new process is implemented, this is ludicrous! (And any company that doesn’t latch on to a guaranteed savings opportunity in this market deserves to fail.)
  3. Review Trading Partnerships
    Companies commonly lack alignment between sales teams and their finance departments, leading to ineffective development and execution of commercial terms. The elimination of non-standard terms can often lead to quick bottom line savings.
  4. Improve Buying
    Considering that a 5% reduction in costs can result in a 50% profit improvement, this should be top of every agenda. And there are dozens of service and SaaS solution providers who can help you do this with little, or no, money down. You have nothing to lose and everything to gain.
  5. Implement a “Lean Office”
    Eliminating low-value activities and reducing bureaucracy at the office is a quick and effective way to reduce costs and to improve responsiveness to the market. When you consider that during previous downturns, companies have reduced the size of their head offices by 15 percent to 25 percent without a noticeable loss of performance, there are probably numerous savings opportunities that can be realized by better processes and technology.
  6. Improve Productivity
    Not only will this improve cost efficiency, but it will increase customer satisfaction, which is critical to retaining profitable customers in the current economy.