I had a meeting recently with two executives of a division of a large multinational business, which we’ll refer to here as Acme plc. We were discussing a change programme they intend to push through their supply chain and purchasing operations, and how I might support them with delivering the programme.

A few days before we met, I put together a short presentation giving an overview of how we might manage the programme (key steps, reviews, etc.) and some examples of similar large-scale business change initiatives I had previously delivered.

As I developed my presentation slides I started reminiscing about the three case study examples I was including. I’d enjoyed working on each one of them, though they were different in many ways. I started thinking about the differences between these change programmes and the degree of success attained with each one. Interestingly, two key conclusions emerged from my thoughts – that organisations can sometimes be too busy to recognise the need for change, and that transformations can usually be more successful when the organisation has explicit recognition that the alternative to change may be dire.

Like many businesses, Acme plc. has been too busy with acquisitions and driving growth over the last few years to spend time and effort looking at the underlying effectiveness and efficiency of its operations.

This is no surprise; in boom times many businesses simply throw money at problems as a quick-fix resolution – if the purchasing department is stretched, employ more buyers; if the production facility is struggling with output, buy more equipment or employ more operators; if the materials function has lots of shortages, increase inventory holding, etc. Few organisations really drill down to question the underlying robustness of their activities and processes, as it’s easy to hide root-cause inefficiencies in boom times.

Well, the boom times are gone now and there’s a lot of press coverage about how businesses are suffering from the financial crises, especially in the manufacturing sector.

But many businesses are simply comparing their current revenue and order books to previous levels without taking a critical look at their underlying productivity and efficiency – a significant drop in revenues and orders demands a related increase in efficiency to protect margins and profits. And now is a good time to drive through key changes that will sustain margins – after all, no better time to gain a good view of the stalagmites on the cave floor than when the water level is down!

The current dearth of economic activity and sales orders creates a significant reduction in operational activity for many businesses, and this, more than any other time, is when businesses should take a good look at their operations to weed out inefficiencies and working practices that drain productivity. It is a lot easier to make key structural or process changes when activity levels are reduced, compared to busier times when resources can frequently be stretched. The businesses that do this now will be best-poised to maximise their gains when the upturn comes, as the robustness and nimbleness of their operations will provide critical leverage that will translate to much better margins than their competitors.

Right now it may be difficult to think about ‘when the upturn comes’, especially if one is dealing with redundancies and factory closures. But the reality is that all things go through cycles and there will be an upturn, we just don’t know when.

Slashing heads and closing factories is nothing more than a quick-fix solution, just like the quick-fixes adopted in the good times. Isn’t it interesting that many large businesses frequently say in their annual reports that “…our people are our greatest asset…”, yet when things get tough that same greatest asset is the first thing that companies get rid of?

We’ve seen these sorts of reactions to economic downturns before and history suggests that these are not effective solutions.

It may be necessary to make headcount reductions, wage freezes, factory closures, etc., but such actions must be part of an overall programme that addresses the fundamental effectiveness, efficiency and productivity of an organisation’s operations.

For manufacturing or product businesses, where the bottom-line profitability is significantly impacted by purchasing and supply chain efficiencies, this need is even more critical. Acme plc., like a few other companies right now, certainly appears to recognise this and is taking the right action.

Of course, deciding on the right course of action is only half the challenge; the other half is implementing that action robustly to ensure the desired benefits are achieved. That notwithstanding, now is the time to drive through fundamental change that delivers optimised capabilities across companies’ supply chain operations. Such change programmes should address key questions about the critical levers that can accentuate or impair an organisation’s underlying profitability. These questions should include;

  • Are our operational processes effective, and are they aligned to our business objectives and critical goals?
  • Do we have the optimal organisational structure and capability?
  • Do we have the necessary tools and enablers to ensure our activities are efficient?
  • Are our sourcing and supply chain strategies aligned to our business needs?

The number of organisations currently driving through such change programmes indicates that quite a few are capitalising on these ‘bad times’, and quite rightly. But still far too many businesses are simply sitting with the suboptimal infrastructure they have, waiting for the good times to return. Well, after slashing their ‘greatest assets’ and closing their facilities, without a full root-and-branch review and revamp of their operations and infrastructure, I suspect that such businesses are unlikely to be fully-prepared for the upturn that will surely come.

These businesses may end up being the laggards of the coming good times.

For others like Acme plc., I suspect that many observers will hail their success in the future good times and point to the steps taken during the downturn to prepare them for the upturn. Yet most, if not all, organisations have the same opportunity that Acme plc. has right now and so few are capitalising on it.

© Sigi Osagie 2009

Published as “Gearing Up for the Wave” in European Supply Chain Management, Sept. 2009; and summary extract featured as “Beyond Low Prices: ‘Tip for Purchasers’” in Supply Management, 28 May 2009