4 minute read
RECESSION-PROOF SUPPLY CHAIN
THRIVING IN CHAOS
HOW TO RECESSIONPROOF YOUR SUPPLY CHAIN
Recent headlines have been peppered with indicators that we’re in a recession. COVID-19 variants, the war in Ukraine, supply chain woes, inflation and a labour shortage are driving world-wide chaos. In a globalized world these issues are systemic, and have become endemic. The next two years will be difficult. How can we protect ourselves from the trials ahead?
At Strongpoint Group, we have worked with clients to review their operating models and find opportunities to increase revenue while reducing costs and minimizing risk. We look at revenue generation and cost management by leveraging two concepts.
These concepts are effectiveness and efficiency. Below, we will focus exclusively on the cost side and offer actions to help businesses not only withstand macroeconomic challenges but potentially flourish and grow.
This methodology calls for all expenses to be justified. The budgetary review, challenging even for sophisticated organizations, requires that every function partners with an objective third-party that analyzes the needs, wants, costs and potential returns.
For example, is it necessary to have an offsite meeting that has been in the books since the company’s inception? The goal is to build budgets around what is essential for the upcoming period, regardless of whether the final number is higher or lower than the previous one. The biggest roadblock to implementing zero-based budgeting is internal politics. Fundamental for the approach is C-suite messaging that there are no sacred line items. Every dollar should be questioned. Even entrenched behaviours and relationships should be tested. Holding all leaders equally accountable is the most critical factor for implementing this strategy.
For most companies, people costs are at the top of the income statement. Despite how grim it is to make decisions affecting teammates’ lives, analyzing these costs objectively and finding opportunities is a crucial element of any cost transformation. We aim to frame these efforts with the need to spread responsibility more broadly, while letting high performers shine. This allows for more focus on mentoring teammates and preparing them for duties that transcend their day jobs. The goal is not only to cut staff. It’s also to be mindful before requesting additional headcount by looking at the structure and relying on leaders while working on career advancement. We would rather compensate someone for stretching their role and accountability than hire someone new. Here are the five rules to help look at people costs:
1. Eliminate layers by expanding the span of control of proven leaders; 2. Jettison redundant or irrelevant roles, functions, and processes; 3. Automate or outsource repeatable activities; 4. Focus on SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound) goals and quantifiable input metrics; and 5. Overcommunicate context and recognize the impact of all changes.
Leaning into your vendor partnerships is hard, and many organizations fail at it. But crises are catalysts to reset relationships and establish mutually beneficial and sustainable terms.
The popular view of negotiators is that they are aggressive, doing anything to get what they want. Thankfully, our modern, interconnected world no longer allows for that type of behaviour without consequences. Good negotiators understand that there is more value in getting a bigger piece of the pie by making the pie bigger than by taking from counterparts. The zero-sum view of dealmaking might still have a place in certain transactions, but it is not the default position for those with business acumen and strategic mindsets.
Here are five questions to help you succeed with suppliers:
1. What does my business need? Ensuring that users understand what they’re buying, and why, is a basic requirement. Yet many organizations end up buying a Porsche when a Honda will do. Calculate the return on the purchase and understand the risks. 2. Who is my counterpart? Negotiation happens in the other party’s mind. When we are sitting across from a large multinational, it is easy to get intimidated. However, the person on the other side has interests, emotions, and thoughts too, and understanding their motivations can be powerful.
Jonathan Rosemberg is founder and CEO of Strongpoint Group, Inc. Reach him at jon@ strongpointgroup.ca.
3. Do we know what else is out there? There is a reason why “three bids and a buy” is popular in the procurement world. Understanding market conditions and gathering information through benchmarking is the most powerful data-driven tool for speaking with a vendor. 4. Is there a win-win? The success of a negotiation is determined by the satisfaction level of all parties. Asking questions and listening uncovers areas that might have little cost to you while adding value to your supplier. 4. What are the risks and can they be mitigated? Our team is sometimes called pessimistic because we imagine worst-case scenarios when negotiating a contract. Relationships between companies are like relationships between people and a crisis can add pressure. Creating mechanisms and governance structure ensures that when things go awry, there is space for communication and problem solving.
Change management is both art and science. There are plenty of frameworks and resources available to transform organizations. Financial business cases change minds, but storytelling conquers hearts. Stressing the importance of this work and bringing people along helps to guarantee success. Ensuring channels for communication, for challenging and for celebrating wins, boosts team engagement and collaboration. Thriving in chaos is an opportunity to build a culture of resilience and positivity. SP
