On of the most difficult challenges for supply chain planning professionals is to both gain consensus on product demand forecasts and maintain some degree of flexibility to respond to demand and supply changes that might occur during the year. This is certainly the case as companies begin to sort out their 2009 sales and operations planning. Certain business news stories this week bring ample current evidence of industry challenges.
An article in the International Herald Tribune outlines the fact that global automaker Toyota Motor Corporation is not immune to the effects of an uncertain business economy. Toyota is trimming its global sales forecast as a result of anticipated declining sales within global as well as the U.S. market. This leading auto maker has now targeted 700,000 fewer vehicles in 2009 global sales and a specific 10 percent reduction in U.S. sales. Toyota invested heavily in trucks and sport utility capacity for the U.S. market, and now it must cut back on expectations. Keep in mind that Toyota has been the global leader in the development and sales of hybrid vehicles, with sales volumes outpacing available supply. So in the case of hybrids, it may be a far different plan.
Another evidence point this week was within the computer industry, where Dell Inc. reported its latest earnings. Dell’s second-quarter net income dropped 17 percent on a sales increase of 11 percent, as that company continues to transform itself to a more retailer oriented sales channel. Dell further indicated that “continued conservatism” has spread from the U.S. to Western Europe and some Asian countries. “Surging revenue in Brazil, Russia, India and China failed to compensate for slowing growth in Europe, the Middle East and Africa, as well as some parts of Asia”. In contrast, Dell’s prime competitor Hewlett Packard was more optimistic, indicating that new notebook designs and global channels led to better than anticipated revenues and earnings. In specific contrast, HP’s revenues in Brazil, Russia, India and China gained 24 percent, while sales in Europe increased 16 percent.
The planning for customer demand during uncertain global or regional business conditions, changing internal business models, and more demanding customers presents supply chain planning and operations with a constant challenge in managing expected demand with supply, as well as overall inventory levels. I recommend that the existence of a cross-functional, integrated sales, operations, and inventory planning process will no doubt help in these efforts, and should be supported by senior management. But conditions of uncertainty will often lead to change throughout the year, and plans can never be expected to remain static. Planning for 2009 must also be supplemented by responsive processes that can quickly sense demand changes in any region or product segment, coupled with the ability to respond in the most efficient as well as timely manner.
As a Japanese auto analyst points out, in tough times, the stronger get stronger than their competition. Stronger needs to include more responsive supply chain sensing and response capabilities.