Latest News

Global Downturn Sparks 'Era of Opportunity' For US Industry 03 November 2008

While the fall-out from the continuing global economic downturn is hitting many companies hard, Chicago-based software developer and supply chain consultancy Barloworld Optimus reckons that US industry will emerge stronger and better equipped to face the future than if the recession had never happened.

President Tony Sinton says that the current economic situation presents ‘an era of opportunity’ that forward-looking companies are already responding-to and that those grasping the opportunities now being opened up are the ones that will not only survive but will also emerge ahead of the competition once the recession is passed.  

“Those that are just riding the storm and hoping to emerge intact will just continue to free-fall further behind” he said.
“Re-thinking network reconfiguration has emerged as the most effective course for weathering the crisis, and with it the realization that far from throwing in the towel or running away from the severity of the situation, opportunities exist for companies to emerge stronger and better equipped to face whatever conditions await on the other side”.

According to Tony Sinton, supply chain professionals now ‘man the tiller’ – not only in steering companies away from the worst effects of the economic crisis, but also in providing the best foundations on which to build for the future.
He adds that one of the potential scenarios that companies should be preparing for is the prospect of oil at $250 a barrel – an eventuality that, say observers, could become a reality in under a decade in the wake of demand outstripping supply as China and India continue to pursue aggressive industrialization aims.

“What might be considered worst-case scenarios now, could so easily become reality in the future – and this is the kind of situation companies ignore at their peril.  

“The lesson to be learned is ‘evolve’ and the best way to do it is to harness the IT tools that spell the difference between survival and failure – as more and more companies are now readily taking on board” he said this week.

According to Barloworld Optimus, whose client list includes Nokia McDonalds, Coca-Cola, Colgate-Palmolive, Hewlett Packard and Johnson Controls – all ranking in this year’s AMR Research Supply Chain Top 25 list for demonstrating how supply chain excellence contributes to economic value creation – the latest technology has promoted effective supply chain reconfiguration and optimization as the acceptable alternative to ‘broad-brush cost-cutting’.

“We’ve been on this roller-coaster before, but the difference between this recession and every previous economic squeeze is that technology now offers the opportunity to take the sting out of the worst effects.

“Right now, we’re living in a world characterized by falling retail sales, lower manufactured and shipped volumes, increasing inventory levels as the result of faltering demand, redundant capacity in the manufacturing base, falling throughputs in warehouses, and eroding economies of scale – resulting in reduced order volumes, smaller shipment sizes and higher cost per unit transportation.

“But as with most things, the solution is clear for those that search for it, and chief among the defenses companies should be adopting are improvements in order and inventory visibility; renewed focus on demand-shaping; closing the gap between forecasts and orders; detailed network design exercises to reveal warehouses that may no longer be necessary; and close transportation optimization analysis to realize freight consolidation opportunities” he said.

Against a background of wildly fluctuating oil costs that saw ppb (price per barrel) at an all-time peak of $147 in July, Tony Sinton reckons that one of the ‘upsides’ of the downturn is that more and more companies are now actively looking to reverse their sourcing decisions of the past few years and are re-establishing production back home...

He adds that as domestic production records its first rise in years – up by 10% according to latest figures – high fuel costs are driving centralized warehouse configurations back to a more traditional ‘country’ model.

Typical examples, he says, are $75 million classroom furniture manufacturer Artco-Bell Corp. who reduced total costs by 20% after transferring production back to the US from China; Thomasville Furniture, a $625 million manufacturer and distributor of wooden furniture, now expanding production in N. Carolina for ranges once produced in China, Vietnam & Indonesia; and Regal Ware Inc., a $250 million, 500-employee maker of high-end cookware who recently consolidated manufacturing back into two Wisconsin plants after 10 years outsourcing to China – a move that resulted in delivery times falling from as much as 60 days to as little as 24 hours.

He also reckons that the escalating cost of transport indicates that Mexico could be poised to replace China as the preferred low-cost sourcing option for US manufacturers, spurred-on by increased labor wages in China, recording an 18.8% hike in 2006-7 and with pointers indicating no let-up in the trend. 

“That, alongside increases in transport costs will have the net effect of driving manufacture closer to home, with Mexico consistently gaining in attraction”.

Tony Sinton says that supply chain planning and optimisation capabilities have become a prerequisite for developing and maintaining responsive supply chains, and that with the skills and software now available to pinpoint precisely where and how savings can be made, the opportunities now presented through inventory management and network optimization “...hold the key to the future, both short- and long-term”.

Barloworld Optimus – with branches in Chicago, Atlanta and Detroit – is the developer of world-beating network modeling and inventory optimisation tools CAST and Optimiza and is gearing-up for the world-wide launch of new super-advanced supply chain optimization tool CINO (Combined Inventory and Network Optimisation) specifically developed to combat the potentially fatal downside of multi-sourcing and multi-echelon inventory flow, with the added ability to build and compare complete ‘what if?’ scenarios.