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Good time to invest in technology: with the economy in turmoil, the days of top line-oriented business strategies are long gone. Now, it's time to hold on tight. Here's what to watch for, and how to prepare.

When times are good, the desire to grow top line revenues overshadows other priorities within a company. Given current economic conditions, though, it is time to begin introducing sup ply chain disciplines and technology to prepare for a very different economic environment in which to operate. Consider the challenges corporations will face in the coming years:

Higher Inflation Rates The money now being committed for the bailout of the financial industry, along with downward pressure on interest rates to revive struggling economies, will act to expand the money supply of major nations. The move is beneficial because it slows deflationary pressures, but weakens the value of currency and in fact creates an environment more favorable to inflation in the coming years. With high inflation, supply chain managers will be forced to become as efficient as possible to protect product margins.

Rising Commodity Prices. While the coming inflationary spiral will have a direct impact on commodity prices, other forces are at work that will add to the dilemma. Consumers in emerging economies are demanding a higher standard of living. This additional demand means commodity dealers will be testing the market's price elasticity in ways we haven't seen in years. Expect higher highs and a gradually rising commodity price bottom that won't retreat. Given the high cost of commodities, the pressure will be significant to bring supply more in line with demand and reduce inventory levels from raw materials on to the finished product.

Threats to Brand Security: Manufacturing and selling on the global market is fraught with risk. Counterfeiters manufacture cheap knockoffs of branded products. Trading partners are only too anxious to fatten bottom lines by selling goods on the grey market. Sources of supply employ questionable quality standards. The specter of global terrorism raises the ante on security of shipments. Brand protection is fast becoming a top priority,

Sustainability Becomes a Strategic Component of Corporate Decision Making. From the supermarket to the workplace, sustainability is reaching a groundswell of popular support that is undeniable. In countries where the government takes a laissezfake approach to sustainability, companies talk the talk but don't walk the walk. This will soon change as public sentiment forces substantive measures to be taken by industry to become more environmentally friendly, This presents opportunities to more directly connect product development efforts with supply chain management to minimize waste.

Cash is King. Given the current crisis in monetary liquidity, companies will be hoarding cash as a way to weather financial turmoil. For the first time, cash preservation will become a major imperative outside of the corporate treasurer's office. Capital spending will come under great scrutiny in this environment.

While companies rethink and redesign internal supply chain processes to meet the challenges that await, don't ignore the global trading community that constitutes your virtual supply chain. If there ever was a time that demands greater transparency of the supply chain, that time is now.

The Supply Chain in the Current Economy

Companies work in their own best self interest. For the foreseeable future, where credit is non-existent, cash is king and opportunities for growth severely limited, efforts taken by companies to survive will strain even the strongest trading partner relationships. Loss of credibility devastated Wall Street; the same could be true in your supply chain.

In his negotiations with foreign powers over nuclear disarmament, Ronald Reagan's watchwords were "trust but verify." The same holds true for the supply chain as the world's economy deals with its worst crisis since the Great Depression. Suppliers, service providers, customers, even employees, will seek to gain the advantage when your company is lacking the proper controls and metrics to manage the supply chain.

Supply chain management (SCM) technologies are an essential part of this strategy. What follows are recommendations on how to use SCM technologies to protect and enforce your company's best interests:

* Strive for transparency in all your supply chain activities. Take advantage of services offered by transportation portals that provide an aggregated view with event management functionality to identify exceptions to the process.

* Prepare your company for the unexpected. Leverage both what-if analysis and optimization-based solutions to assess alternatives and choose the best plans of action.

* Measure your company's performance against goals. Develop performance management capabilities that can proactively identify discrepancies between plans and actual performance and recommend corrective actions.

* Bring freight settlement and audit in house. Use tools to compare planned costs versus actual, including accessorial charges, detention, and continuously audit those special services which may or may not have been requested.

* Control restricted party screening and product classification. Avoid costly security breaches in your supply chain by leveraging global trade management tools.

* Consider implementing labor management within distribution centers. Not only does it monitor and help develop workers and supervisor performance, but it also can be used to determine capacity constraints during peak seasons.

* Constantly assess your network's fundamentals. Through tools like profitability management, network design, and product portfolio management, verify the foundations of your supply chain. Do not focus on optimizing silo'ed areas without measuring the impact on total network costs and profitability.

There is no better time than now to invest in technologies that yield greater transparency and control within the supply chain. Given capital constraints in the near term, many of the technology services available to help your company accomplish this are offered on a subscription basis, a monthly charge usually based on usage that is modest enough to come from an operating budget already established. Trust but verify; navigating through the next several years will be a test of wills between partners but also one of how well the supply chain is under your control.

John Fontanella (jfontanella@ amrresearch. corn) and Noha Tohamy (ntohamy@ amrresearch. corn) are vice presidents of research at AM R Research. Wayne McDonnell (wmcdonnell@ amrresearch. com) is a life sciences research director at the firm.
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Title Annotation:TEChNOLOGY
Author:Fontanella, John; McDonnell, Wayne; Tohamy, Noha
Publication:Supply Chain Management Review
Article Type:Company overview
Date:Nov 1, 2008
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