Source: www.wikipedia.org

For the past 18 years, the University of Tennessee, Knoxville has conducted its “Annual Trends in Logistics and Transportation” study.  This year, the unprecedented challenges brought on by the global recession were at the forefront of survey participants’ minds. Economic hardship produced intense pressure to reduce costs across supply chains. Unpredictable demand for goods and services, increased customer demands, and volatile commodity and fuel prices combined to make 2009 one of the most difficult operating years ever for businesses.

Over the many years that we have been conducting the Annual Trends study there have been several economic down cycles, although none compared to the intensity of 2009. While companies always seek to become more efficient, challenging economic times drive companies to become even more relentless in their quest to reduce costs. What we discovered from our analysis is that these cost-cutting initiatives can impact firms both positively and negatively for several years after the economy recovers. What lessons have we learned that can be applied to the current situation?

• Cost-cutting must be done using a “strategic filter”
• Investments in improving supply chain capabilities should not be delayed
• Even in bad times, customer service cannot be sacrificed

The reflection on the past led us to the theme of the 2009 study — sustainable supply chain management practice. The changes we are dealing with today are not for a season. Some argue that continual economic and social change is the “new normal.” Instead of constantly re-orienting to the changing conditions, perhaps a wiser approach would be to create a supply chain practice that adapts to conditions. While the term “sustainable” has been used lately in the context of environmental and green issues, it also succinctly conveys the need to build and develop approaches and techniques for managing and operating the supply chain that will make the firm more responsive to a host of circumstances such as those cited above.

We have identified five drivers that constitute the core of sustainable practice in supply chain management. These drivers are optimization, synchronization, profitability, adaptability and velocity. They comprise the engine that will fuel growth and success. They represent capabilities that will be difficult for the competition to emulate, and they are fundamental to creating a supply chain that will outpace the competition.

Why are these drivers so critical to successful supply chains? Perhaps it is the unique set of capabilities, both individually and collectively, that they represent. The following provides a short descriptor for each driver:

Optimization is the alignment of global supply chain resources — both tangible and intangible, owned or outsourced — to facilitate the success of supply chain members.

Synchronization is the ability to coordinate, organize and manage end-to-end supply chain flows — products, services, information and financials — in such a way that the supply chain functions as a single entity.

Profitability is the result of creating value through supply chain activities. Asset performance, working capital and returns on investment for infrastructure, technology and people are some of the critical parts that create value in a global environment.

Adaptability is the degree to which respective supply chain members can change practices, processes and/or structures of systems and networks in response to unexpected events, their effects or impacts.

Velocity is the speed at which end-to-end flows occur in the supply chain. It encompasses speed-to-market for new product introduction and execution when conditions are rapidly changing.

As companies work to recover from the economic perfect storm of 2009, revisiting and reexamining their supply chain process against these five drivers of sustainable practice should be a priority. It is an exercise that will help determine if your supply chain can adapt and be successful in today’s “new normal” of continual economic and social change.

Dr. Mary Holcomb is associate professor of logistics at The University of Tennessee. The findings of her 2009 Annual Survey and more information on the five drivers of sustainable supply chain performance can be found at www.transportation-trends.com.

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