How Lytica became a unique analytics company: Part 21
“We are entering times of trouble”. This is the opening sentence in an article by Oliver Wymans’ partner, Armin Scharlach, titled “Procurement During Trade Wars – Competitive Advantage in Times of Trouble”[i]. ) His article looks at one’s ability to succeed with serious trade wars between the USA and China and with the USA and Europe. It’s worth reading; however, if this was all there is in the land of trouble, it would be dangerous but survivable.
In the nursery rhyme “Humpty Dumpty”, all the King’s horses and all the King’s men couldn’t put Mr. Humpty together again. Interestingly, it’s unclear whether Humpty could not be reassembled into an image of its former self or if he couldn’t be assembled into anything at all. I believe once something has changed, it can never go back to exactly where or what it was before. Sometimes things get better, sometimes not.
If we are in the land of trouble, are things about to change and if so, what are the odds that things will change for the better? What are you doing to make sure your downside is minimized? For example, how well are you prepared for tariff changes and country of origin sourcing manoeuvres?
Trade wars are disturbing as one cannot predict the outcomes as emotions, the extreme opposite of level heads and logic, run high making reasoned solutions difficult. But the land of trouble has more for us. We are in the second longest economic recovery in history. The average recovery period is 56 months and we have now exceeded 108 months. This long business expansion without a correction has been supercharged by tax cuts. I have been around for a long time and have witnessed and felt the pain of market corrections. They occur unexpectedly overnight (or faster). Look at Facebook’s recent market cap loss, the largest in history, vaporized in mere minutes!
But trade wars and market correction risk aren’t the only rough road in the land of trouble, there are also component shortages. You are suffering through these now. I see two things that will happen as an outcome. Some companies will miss revenue targets because they can’t get parts, sending concern into the market. Many others will double order creating a false impression of demand leading to a flood of inventory. Neither of these are good.
I will add – although there are more – one other land of trouble bugaboo to the list and that is technology. In this case I mean systems and tools, many based on AI, that your competitors have integrated into their work processes. These AI enabled systems and tools give them significant productivity and results gains while you remain in a cluttered world of data errors and incongruent information.
When there is a downturn (and it’s when, not if) many companies will be unprepared for the new competitive landscape emerging from the land of trouble. Suppliers and manufacturers will act to cut costs by shedding people and older, low demand products. What happens when the only person who could translate your error infested BOM into the correct parts is suddenly gone? What about product cancellations of single sourced parts? Are you prepared? Your company will probably not invest to give you the resources and tools you need to be effective, that is if you’re still there!
Clearly now, when times are good, is the time for you to get ready but what should you do?
Here are some recommendations that I would act on if I were in your shoes.
- Benchmark costs to understand your competitive position and benchmark them frequently during the downturn to see if you are keeping up with market. Cost will be your top priority in a downturn.
- Use benchmark results along with SPC analysis to identify and address opportunities for performance improvements within the procurement organization
- Fix your data quality problems so that you are always ordering and manufacturing with the correct parts
- Understand what component alternatives exist for your AVL to address today’s shortage and tomorrow’s alternatives sourcing
- Make sure your Country of Origin data and tariff tables are accurate
- Understand what system integration opportunities exist to create a coherent platform of procurement information and take steps to implement legitimate solutions
Lytica and its sister company, Silecta, can help you with all of these things. The time to act is now before budgets get cut and remaining staff are completely overloaded. Act when things are good to minimize the impact when things get bad. This must be a law of nature as squirrels seem to know this. Don’t get caught off-guard and be helpless trying to respond like a polar bear against global warming. This may be as good as it gets for some time to come so act now.
After all, what is causing things to be so good now that gives Apple a trillion dollar valuation? Trust. Trust that this crazy glue economy will stick together.