CSCMP's Supply Chain Quarterly
December 18, 2017
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Perspective

Use the downturn to prepare for the upturn

Comment
The global economic downturn is providing a temporary reprieve from high energy prices and an opportunity to plan for the future.

It's a good thing for companies to reexamine their supply chains periodically. Usually it's a voluntary exercise, but Carestream Health didn't have much choice: As described in the article on Page 72 of this issue, the medical imaging company was forced to take a fresh look at its supply chain after it was sold by its parent company, Kodak. Carestream Health used supply chain network analysis software to verify that it had made the right decisions about the locations of its distribution centers. As the story notes, Carestream plans to make it a standard practice to regularly re-examine the makeup of its supply chain.

Given today's dynamic business environment, it's important for companies of all types to do the same. Among the factors they need to consider are the number and locations of manufacturing plants and distribution centers required to serve customers and markets around the world. The emergence of software programs for network design and inventory optimization, which contain mathematical algorithms that compare variables to devise a solution, makes it much easier to conduct this type of analysis.

Supply chain network reviews are valuable at any time, but it's especially important to conduct them now, in the midst of a recession. That's because the global economic downturn is providing a temporary reprieve from high energy prices and an opportunity to plan for the future.

That is why I'm suggesting that you take advantage of this period of depressed oil prices to model and evaluate your current supply chain networks. Consider developing and testing various scenarios to determine the optimal manufacturing and warehousing locations for serving your customers while you are not under pressure from record-high oil prices. After all, it takes time to select a new contract manufacturer, shut down a plant, or reposition a warehouse.

At this writing, the price of a barrel of oil has fallen by more than half from its near-$150 high of a few months ago. As supply chain professionals know from firsthand experience, high oil prices drive up the cost of both manufacturing and distribution, making it necessary to optimize supply chains for efficiency.

Even though companies typically cut back and retrench during recessions, now is not the time to put aside planning for tomorrow. Because as soon as the economy comes roaring back to life—and eventually it will—the price of oil will resume its steep upward climb and may even surpass 2008's lofty levels. Supply chain managers who think ahead and prepare now will not be caught off-guard, and they'll be ready to reconfigure their supply chains when energy costs become an even bigger concern than they are now.

Until next time...

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

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