Supply Chain 2009 – Will The Trends Continue?

December 30th, 2009 by Joe_EDI

While economic conditions improved a hair for some of us…most distributors didn’t fair so well.  However, all indications – the so-called “experts” predict growth in 2010.   That growth is predicted for the global economy, not North America.  So hang on to your hats folks – here’s what we saw in the distribution market space this year and our predictions for 2010.

How Low Can You Go?
Keeping inventories extremely low helped many distributors with cashflow -especially in light of the fact that banks closed their doors to small and medium sized businesses.  Of course cutting inventory was also a direct result of decreased demand that impacted the entire supply chain – consumers weren’t buying.  Retailers consolidated their offerings, squeezing out many of their suppliers.  They bought less from distributors who bought less from manufacturers who responded to consumer demand by …manufacturing less.   Now that retail inventories are so low after the holiday season there are fewer “After-Xmas” sales to be had by consumers…it’s a vicious cycle isn’t it? 

But…all indications from the market predict that demand will come back – it’s like the circle of life.  Inventories have been historically low since the summer of 2008 and as demand increases (we already saw a 3% increase in retail sales this year over 2008)  it will start to pull inventory levels back to “normal”.  Managing your inventory is going to be key this year – you want to plan based on demand, being careful not to overdo it.  Demand planning and visibility to your demand chain will be critical this year.

Penny Wise or Pound Foolish
Technology spending pretty much came to a halt – as did other non-essential spending categories like hiring, bonuses, hardware, marketing, etc.  Many employees, excluding bank executives,  took pay cuts or didn’t receive salary increases (for some this was their second year without an increase).  Most companies have figured out that when times are bad, the last thing you want to cut is marketing – so we’ve seen a shift in marketing toward better, measurable, cost effective web-based activities. The only software sector that experienced growth this year was CRM. 

Banks are loosening their purse strings which will lead to better cash flow for companies.   As more cash becomes available, distributors will begin to spend again and the demand chain will start to churn.  However, companies will need to be mindful of return on investment.  Visibility to data within your company will need to be a key focus for distributors in 2010.  You can’t manage what you can’t see or measure.  Investing in tools that help you see your business better, will lead to better buying decisions – with better payback. 

On the Cutting Edge or Bleeding?
Retailers not only cut their inventories this year, but reduced the amount of available product.  Instead of 8 brands of toothbrushes they reduced their offerings to 3.  This strategy helped them clear much needed shelf space so they could offer a more of the products that are top sellers.  We saw a number of manufacturers and distributors lose trading partners this year and for many, that trading partner was more than 40% of their business (yikes!). 

Staying competitive, assertive, and attentive with customers will be extremely valuable in 2010 as we think this whittling strategy will continue to cause problems for suppliers.  Staying competitive and retaining your customer base means not being a problem vendor.  Fulfill orders correctly, make sure your stuff is in stock, provide value for the right price. Investments in areas such as EDI, warehouse management, and demand planning can provide you with competitive advantage in the form of more perfect orders - which results in happy and long lasting customers.  Consider too technology tools that help you better track inventory coming in and going out – you’d be surprised at the percentage of lost revenue opportunity that occurs simply because of poor tracking capabilities. 

Green Pastures
There was a lot of focus this year on “greening up” product – everything from packaging to promotion was geared towards sustainability or improved health.  Did you notice new product launches in the Food & Beverage industry touting “whole wheat”, “natural”, “organic” and even “certified-organic”?  In CPG we saw an emphasis on products that were packaged in brown “natural”, “recyclable” paper.  These products weren’t neccessarily new product launches, but repackaged to support new markets.  We saw an increased focus on good-for-the-environment items like biodegradable garbage bags,  cat litter, etc.  As long as there is demand this trend will continue into 2010.  Products will become more compact which has been a great strategy for some distributors to maximize shelf space, and reduce shipping, handling, and stocking costs.

Mergers & Acquisitions
Those companies with cash on hand saw a ripe opportunity to acquire other companies in an effort to expand their reach, or customer base.  We saw a greater-than-usual amount of consolidation in distribution and manufacturing this year – which can meet corporate objectives in the short term – but will need more attention to integration this year.

When companies acquire they often contend with multiple disparate business systems, redundant or inefficient processes that need to be addressed before they negatively impact the business.  Tools and technologies will need to converge this year to propel these companies forward in meeting their long term goals.  Making the right investments and looking at cost effective, yet full featured options will be key. 

So – we welcome 2010 and embrace the idea that it’s going to be a better year for manufacturers and distributors. More cash in the economy is going to enable increased spending which should get our supply chains moving again.

Happy new year to all and may 2010 be a profitable and fruitful for your business.