Economic downturn is the time for supply chain improvements

Computerworld - According to the July 2003 business report from the Institute for Supply Management, U.S. economic activity in the manufacturing sector grew, while the overall economy grew for the 21st consecutive month.
But one has to wonder what rose-colored glasses analysts are wearing when they talk of sustained economic growth. The fact is that the nation's GDP did rise to 2.4% annual growth for the second quarter of 2003. The increase represents a one percentage point gain to the anemic 1.4% rate that stalled our nation's economy for two consecutive quarters. Analysts attribute the recent GDP increase to escalating defense spending, not to a big boost in consumer spending.
The unemployment statistics offer a more sobering barometer of our economy's true health. In June, the Department of Labor announced the unemployment rate was 6.4%, a nine-year high that reflects 30,000 job cuts in June, the fifth straight month of job losses.
So it would appear that businesses are hunkering down, opting for more belt-tightening as we go into the third quarter of this year. But is sitting on our hands waiting for the economy to improve really the right mind-set during times of economic woe? Savvy business leaders say no.
During the June 2003 AMR Research Spring Executive Conference, Roy Perry, corporate vice president of global supply chain management at Storage Technology Corp., presented a dramatic case study showing the benefits of his recent fast-track, high-value supply chain project.
StorageTek is a $2 billion company that offers a broad range of data storage products, such as tape drives and automated cartridge libraries, disk arrays, and network management and backup software for businesses and government agencies.
The company faced wildly fluctuating inventory levels that produced high debt-to-capitalization levels due to its forecast-based, "push" supply chain business. The solution was to implement a vendor-managed inventory network that would support lean manufacturing. The goal was to realize the benefits in short order.
In the end, the project was completed within 120 days, integrating key suppliers and third-party logistics hubs. The return on investment was remarkable. On the operational side, the company's inventory was reduced 46%, while inventory turns went up 74%. Within six months, StorageTek achieved $41 million in savings in raw and work-in-process inventory, translating into $12 million in annual operating expense savings. Suppliers saw inventory reductions as much as $25 million. Both manufacturers and suppliers saw improved supply chain visibility.
This success story underscores one fundamental point: Slow times are the best time to invest in your company's future by ensuring supply chain peak efficiency when the economy rebounds.