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If it’s not one thing, it’s another. Last year, we all dealt with the fear and confusion of a global pandemic. Sure, that one is still ongoing; but people seem to have found ways to accept the circumstances and persevere.
This year, we get to deal with a global supply chain meltdown that may have been caused by the forementioned pandemic. A couple of months ago, I ran across a video that discussed the supply chain mess. It suggested that the pandemic wasn’t actually the cause of the crisis. Rather, it was just the straw that broke the camel’s back on a very fragile system.
The JIT (just-in-time) inventory management philosophy popularized in the 1970s Japanese automobile market reduced waste in the process. However, it relied heavily on a very timely and coordinated flow of materials. In our modern interpretation, coordination is even more critical to the success of manufacturing.
With the shutdowns of early 2020, the whole system was thrown on its ear. This global system — which relies on production, shipping, trucking and labor — could not find its groove. That is what happened and is still happening.
Rather than dwell on the answers, of which I don’t have many, I would prefer to focus on the silver lining to this cloud of scarcity and disruption in our ability to procure product.
As I have mentioned many times in my writing, I facilitate groups of distributors with the goal of solving common challenges in specific job functions. We tend to focus on micro solutions rather than get spun up on the macro challenges. We leave it to those who have larger platforms and thrive in ambiguity.
Recently, some groups shifted focus away from the challenges and reflected on the positive lessons taken from the supply chain crisis. These are their thoughts.
The first area we discussed was the relationships in the supplier community. Here, there were a couple of schools of thought. Some suggested that the relationships with their key suppliers had become closer during this time, with greater collaboration and visibility to the supply process.
Distributors opened their kimonos a bit and shared usage information with the hopes of gaining preferential treatment with allocated product. There is a new interest in alternative products that may be a better fit than those in the standard buying habits. People are talking more than ever before.
On the flip side, distributors are reaching outside of their traditional suppliers and developing new relationships with alternative suppliers. Those in procurement are now very adept at hunting down and finding alternate pockets of supply. This led to greater creativity and critical thinking in this department.
In the wake of scarcity, distributors are learning how to segment their customers to determine their best relationships. The days of saying yes to all and trying to satisfy everyone are long gone. Although this is not a new concept, the segmenting of customers by bottom-line contribution is gaining traction. Rewarding the loyalty and profitability of the customer base is more attractive.
Similar to the collaboration with suppliers, sales teams are learning how to communicate more effectively with their customers. Planning and being transparent with supply challenges have brought salespeople closer to customers than ever before.
Another byproduct of scarcity is creativity. In the current climate, salespeople have the opportunity to expose customers to alternative, higher-priced products. Customers who need product are more willing to listen to available product options. Now is the best time to consider upselling and establishing familiarity with premium products.
There are a couple of areas where profit margins can be enhanced in this disarray. First, supplier price increases are coming fast and furious. No one has escaped this new challenge. Rather than dwell on the negative, price increases are the best time to find modest margin gains in your pricing strategy.
Sure, you can’t bump the highly sensitive items in your product mix, but at least 85 percent of your products can take a margin bump at the time of supplier increase. As you move down the sensitivity scale (popularity), add anywhere from 0.5 percent to 2 percent to the supplier increase.
Inventory carrying costs should reduce a bit due to a lack of availability, but we should also see a better turn ratio on the majority of products. Now would be a time to review your slow products and see if they would be attractive alternatives to traditional items.
Please don’t misunderstand me here. I am not asking you to reduce your inventory levels on your higher hit items. The love of turns and lean inventory practices are what got us here in the first place.
The COVID-19 pandemic and supply chain fallout have shone a light on company culture in ways we have never seen. For those with a clearly defined, positive culture, this crisis tested and solidified the positive attributes. For those who have been negligent with regard to their human resources, they are struggling to find solid ground.
Leadership visibility and direction have been put to the test. Those who coach and encourage their team will be the big winners.
One of the more positive cultural changes is flexibility. Teams have had to scramble to stay open, find ways to work remotely and collaborate from a distance. The work environment has been rapidly evolving. This is a good thing, and we should not pine away to get back to normal.
Our teams learned to overcome obstacles, in short order, and found ways to thrive in chaos. They are no longer excuse-makers; rather, they have evolved into problem-solvers. This is something that leadership needs to encourage and not chalk it up to a fad or circumstance.
Our companies learned how to manage resources better than ever. Inventory management has gone through a transformation. Facilities and delivery methods adapted to fit the shifting environment. Technology solutions came off the back burner and gained a renewed interest in the mission. When our people became sick, we stepped up to fill the gaps. We pulled together like never before.
Paul Romer, an economist at Stanford University, once said, “A crisis is a terrible thing to waste.” Our job is very simple. Take the lessons of the past 18 months and don’t let them get lost to archives of your company. Learn from this time. Capitalize on what you are doing right and how your team is overcoming adversity. Make it your silver lining going forward. As always, I am here to help.