Supply Chain Strategy in Economic slowdown

Posted in Operations & IT Articles, Total Reads: 3109 , Published on 30 October 2010

The economic uncertainties coupled with declining consumer confidence had created one of the challenging times in the recent past. The overall economic slowdown had impacted top line and bottom line of most of the Indian companies. Uncertain demand had impacted top line while bottom line was affected by increasing inventories and under utilization of assets. All areas of supply chain had been affected by economic slowdown, right from procurement to inventory to distribution.


SCM in Recession


There has been a lot of levers being used by companies to combat economic meltdown. One of the reactions, from the companies is to reduce inventory for better cash utilization.  Companies try to reduce their inventories to negotiate falling demand conditions. This strategy may well work out in the short term but may result in stocks out and potential opportunity losses.

Price cuts and discounts offered may increase the demand temporarily but one should keep in mind that this can easily be replicated by the competitors and moreover may also result in profit erosion.

Another step followed by companies is to close down warehouse and distribution centers. This may reduce operational costs but in case of surge in demand the companies may find it difficult to cope with the rising demand.

Above mentioned levers may yield results in short time but there are other advanced simulation and optimization techniques which can be deployed to counter the changing market conditions and effectively navigating through tumultuous time.


There are four pillars of effective supply chain planning which is part of integrated supply chain.

Procurement optimization

Production management

Inventory Optimization

Demand management


Procurement is one of the important steps of supply chain process. It is essential that we obtain right input at the right time in adequate quantity. A decision support system can be build by the company to identify the target price for bidding and auctions, identify the optimum level of procurement and timing of purchases. This system can improve responsiveness of the procurement function.

Customer relationship management and order fulfillment form an integral part of any supply chain process. Production scheduling, inventory replenishment synchronization will lead to effective order fulfillment. Systems can be built such that provide customers with optimal quotes in terms of price and delivery times thereby ensuring better capacity utilization.

Companies are often faced with the problem of identifying optimal level of SKUs. The problem can be complicated by large number of warehouses, distribution centers and multiple channels. Advance analytics can be used to solve this problem to identify optimal inventory levels within organization’s supply chain network. This will definitely improve on time deliveries and maintain desired customer service levels.

Demand management is also one of the key focus areas for effective supply chain optimization. Drivers for the demand should be identified and impact of each driver should be quantified to estimate the responsiveness of changing market conditions.

Companies have to move beyond traditional methods of supply chain to develop agile supply chain management functions. Using structured simulation and optimization techniques, companies can develop effective supply chain strategy that would ensure benefits not only in crisis but leverage upon it during an upturn.



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