Supply chains cannot be shrunk into greatness

No one will argue that South Africans are facing tough economic times. Our inland fuel price just exceeded the R16 per litre mark, inflation is hovering around 4.5%, and our economic growth forecast is a modest 1.7%.

These factors, combined with continued uncertainty surrounding policy decisions and the ever-present rating agencies threatening downgrades, have created a particularly challenging environment for local business. As more and more businesses tighten their belts, there will be undoubted scrutiny on cost drivers, and, more often than not, the supply chain will be one of these. It is, however, short-sighted to simply cut costs. It is far wiser to seek to improve agility and responsiveness within the supply chain to increase one's ability to react to cost pressures, and, as swiftly, ramp back up when the market demand recovers.

"A traditional response to economic pressure is often to seek cost savings within the supply chain, and while this is not completely wrong, it may well be short-sighted," says Tyrone Rennie, Solution Development, Marketing and Strategy Executive at supply chain specialist Barloworld Logistics. "The real pain experienced within a supply chain is often not the costs associated with any single activity, but the cost constraints built into the network through asset ownership and internal management. Often, a simple outsourcing model can create the flexibility required for an organisation to downscale and upscale capacity and the associated costs in response to demand."

Outsourcing can be viewed as a dirty word, often deemed to imply a lack of control and even additional costs, but a true collaborative partnership between organisation and supply chain provider can create far more benefit than downside. Through expertise, leveraged networks and economies of scale, an outsourced supply chain can offer not only far greater reach than an owned one, but also flexibility in terms of capacity and partners. When economic pressure comes knocking, or demand dips, it is essential to maintain quality and efficiencies to continue to create customer loyalty, while at the same time being able to pare back where necessary.

"There comes a point where cost-cutting is erosive of value; it is a simple fact that an organisation cannot shrink its supply chain into greatness," argues Rennie. "This is where the value of partnership comes to the fore. The ability to rapidly upscale and downscale is only possible through a commercial model that includes variability. A supply chain control tower, for example, is a model that intrinsically accommodates variability in demand, as well as having the luxury of predictability and foresight built in."

Control towers and outsourced partnerships are by no means new, but deserve a closer look thanks to technology innovation that certainly highlight their benefits in constrained market conditions. Advances in how 4PL supply chains are managed are creating a confluence of visibility, predictability, orchestration and execution thanks to cloud-based, up-to-the-second technologies that create integrated holistic views of supply chains. There are myriad advantages unlocked through these models, but the one most pertinent within a constrained economy is the ability to swiftly identify areas where the supply chain can be moulded, downscaled or augmented to provide the type of flexibility required to meet bottom-line objectives.

"There is no doubt that there is value in expertise, and the supply chain is no different. Outsourced or 4PL partnerships created intertwined strategies that accelerate growth, unlock market share and deliver financial metrics," states Rennie. "There is immense satisfaction in the ability to grow a customer's business, but it's during the tough times where the real beauty of such models is really on display. The ability to predict and pivot in real-time in response to shrinking demands or economic pressures, without compromising the quality of individual supply chain activities or threatening the entire network, is where the true value of outsourced supply chain solutions lie."