A recent post over on Supply Chain Matters by Bob Ferrari discussed the 2011 supply chain budgeting dilemma. According to Bob:
Input commodity prices are again on the rise. A recent Wall Street Journal article (paid subscription may be required) notes that in food products, metals, energy and other commodities, prices are again on the rise. As an example, because of the severe crop failure in Russia, wheat prices have risen 34%. In one year, corn is up 44%, milk 6.5% and cheese 29%. Copper is up 30% and other metals such as steel, aluminum and other metals are on the rise.
The implication is that in many industries, firms are determining whether increasing costs will be passed along in higher prices, or will be absorbed or buffered by reduction of costs in other areas … supply chain cross-functional teams will again have to ascertain what assumptions, plans and programs will need to either be accelerated or deferred in 2011.
In our view, these challenges come at a very unfortunate time. Now, more than ever, teams need to be prepared with the supply chain planning and execution capabilities required for the post-recessionary recovery. Most companies who survived the global recession have done so by severe cost cutting and reduction of headcount. While balance sheets remain cash rich and profitability remains at high levels, supply chains are probably the highest state of lean than they have ever been in the last decade.
It’s a bad situation, but it doesn’t have to be. There’s an easy fix. Stop hoarding cash, buy some new systems to increase your team’s productivity, add a few top guns, and go to work on controlling costs along the board. I know it’s never that easy in practice, but it should be.