Preparing for Disruptive Events

Great article by Steve Banker over at Logistics Viewpoint titled Integrating Strategic and Supply Chain Planning at Emerson. In the article, Steve gives a case study of Emerson Process Management, a company that has prepared itself for turbulent times by implementing a robust strategic management planning process.

A major part of Emerson’s risk analysis accounts for disruptive events. These “What if” scenarios ensure that the company is well positioned in case of high impact events such as the recent outbreak of swine flu or the political turmoil in Thailand.

However, it seems that many retail businesses have not prepared for such disruptions to the supply chain, nor the sudden change in consumer spending.  According to the Wall Street Journal, even today, months after the initial slowdown in consumer spending, the inventory-to-sales ratio, a measure of the number of months it would take businesses to deplete their current inventory, still flies high at 1.31 much higher than a year earlier, when the ratio was 1.12. Given the uncertainty around the economic outlook and the effect of additional job losses on consumer spending – there are still significant excess inventories that will need to be worked off.

With more scrutiny from stakeholders pressuring companies to perform at higher levels of efficiency through the downturn, businesses will have to work harder in all aspects of their business to increase returns and lower costs. Companies will need to put more inventory controls in place, creating efficiencies through reverse logistics – turning the excess inventory into cash and maximizing those recovery rates. Moving forward, however, with so much excess inventory on the market, businesses are going to have to look for new and creative to offload inventory with the help of wholesale liquidators – as well as develop contingency plans for disruptive events.