As the following image from the AbleBrains blog indicates, at every single step:
Because if you don’t, yours will be the company that sees its supply chain get a lot leaner — fast. Consumer confidence may be rising, but discretionary spending — with the rising cost of food, clothing, and fuel — is falling. It’s not a good time to be in an optional CPG category — so you better make sure everything that you do is about the customer.
It’s coming. It costs US business over 700 Billion each year. And your product could be next. Are you taking steps to make sure that it’s not?
Remember, the supply chain doesn’t start when an order is made or stop when the product is delivered. It starts in the NPD design phase (and considers compliance and safety issues) and keeps going until the product reaches end of life and is recycled. And it only takes a single misstep for a Product Recall to rear its ugly head. That’s why good processes and quality control are vital.
In 1941, Tex Avery directed a Merrie Melodies animated short starting Bugs Bunny and Cecil Turtle called Tortoise Beats Hare. A new twist on the classic tale of the Tortoise and the Hare, it had a pretty simple message buried within:
You snooze, you lose.
And that’s precisely what will happen if you fail to constantly improve your supply chain.
Will reading a recent Wired article over on CNN Tech on why nobody can match the iPad’s price, I began to wonder if maybe it was time for multinationals to start vertically integrating their supply chains again. Now that the perfect storm of cost, supply risk, and market turbulence has hit, it would appear that the outsourcing and right-sizing craze of the nineties and early noughts has revealed its dark underbelly. The shiny paint of internal cost reduction has cracked and pealed and all the hidden costs associated with logistics, delays and stock-outs, and lack of buying power on the part of your suppliers are now exposed.
The article, which notes that none of Apple’s competitors can meet the $500 that it asks for an entry level 16 GB wi-fi iPad, notes that Apple is able to achieve this feat for two reasons:
This results in a company that is able to not only able to use a vast ecosystem to design, build, and sell its products, but that is able to control that ecosystem as the last company in our industry that creates the whole widget (Steve Jobs, Wired.com).
Makes you wonder if its time to integrate those key pieces of the supply chain that you spun out over the last two decades because some consulting organization, looking for an excuse to further drain your bank account, convinced you it was a good idea. Or at least take a significant (share-based) interest in a few key suppliers so that you can guide them towards a successful path and, when it makes sense, buy raw materials on their behalf.
We already knew that food prices are rising considerably across the board. They’ve risen so much (29% in the past year) that the World Bank estimates that 44 Million people have been forced into poverty since last June as a result.
If this isn’t enough, thanks to the skyrocketing price of cotton (which has more than doubled in the past year, hitting all time highs), “clothing prices are set to rise 10% this spring” (BlazeMedia). Considering that the average household spends about 15% of their budget on food and 5% on clothing, which are not discretionary expenses, the average household is now looking at a total increase in their non-discretionary food and clothing expenses of 5%. Given that, after housing, food, clothing, transportation, health care, insurance, and debt payments, the average household had less than 15% of their funds for discretionary expenditures, this says that the average household now has less than 10% of their funds for discretionary expenditures. That’s a 33% reduction in discretionary funds in less than a year!
This says that any company that provides a discretionary product or service to an average consumer is now fighting over a market-share that might have shrunk by a 1/3rd. Someone is going to lose and someone’s market share is going to get smaller. This means that a number of supply chains are going to have to get a lot leaner this year for those companies to survive. Is yours ready?