Consider leasing technology such as automation because it is a fixed cost and less scalable ©  Thomas-Soellner/Getty Images
Consider leasing technology such as automation because it is a fixed cost and less scalable © Thomas-Soellner/Getty Images

Why the 'five Ss' can help you survive a Covid recession

Will Green is news editor of Supply Management
21 August 2020

Supply chain lessons from firms that best weathered the 2008 financial crash can help businesses today be more resilient in the face of coronavirus, according to a report.

The report, from the Association of Supply Chain Management (ASCM), said the firms most resilient to the 2008 recession were:

• leaner, with lower levels of working capital and less inventory,

• had a variable cost structure,

• and had early warning of the impending downturn and were able to respond more quickly.

Researchers used data from more than 1,800 medium and large public companies across the extraction, manufacturing, communications, trade, and services sectors between 2005 and 2010 to determine the performance of each supply chain.

The work involved looking at different supply chain factors including assets, labour, working capital and profitability to identify what made firms more resilient.

The report said: “Companies that invested in supply chain excellence performed better than their peers during the recession and immediately afterward.”

The 20% most resilient firms grew by 11.9% in 2010, based on return on assets, and they increased market share by 0.24%, where competitors lost on average 0.1%. They reduced inventory days on hand by about three days, 5% less than the average manufacturing firm.

Professor Morgan Swink, of Texas Christian University’s Neeley School of Business, who produced the report with the ASCM, said: “Developing a more resilient supply chain puts money in the bank and makes the world a better place.”

The report recommended firms adopt the “five Ss” to build a more resilient supply chain:

1. Scanning. Firms should invest in scanning technology and capabilities because few have enough visibility of the market to see past two tiers deep in their supply chain. Sources of market disruption to look for include weather, politics and disease.

2. Smart. Invest in predictive analytics such as artificial intelligence because a supply chain that learns from small disruptions can apply that to larger events.

3. Scalable. Scale up and down to match supply and demand and create a variable cost structure with on-demand capacity. Consider leasing technology such as automation because it is less scalable due to fixed operating costs.

4. Shiftable. Shift from one product to another, as fashion companies did to make face masks during coronavirus. Invest in generalised, multipurpose resources and develop many options. Do not single source. This technique is more expensive but it does minimise risk.

5. Sustainable. Be more sustainable by prioritising people’s livelihoods and the planet and consider sourcing from local suppliers. It may come at a price but it is likely to be worth it.

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