It was a hypothesis no one wanted to test. Nevertheless, it appears we'll soon be in an ideal position to see how it stacks up against reality.
The hypothesis in question was advanced more than a decade ago by Louis Lataif, dean of Boston University's School of Management and former head of Ford Motor Co.'s European supply chain operation. Lataif has long argued that logistics—or to be precise, advanced logistics technologies introduced in the '90s—are changing the rules of recessionary economics. Logistics technology helped blunt the impact of the 2001 recession, he told this magazine in 2004, and it will have the same effect on future downturns.
As for how technology kept the damage in check back in 2001, Lataif explained that it was a matter of averting dangerous inventory buildups. Historically, as a recession takes hold, consumer confidence—and hence, consumer spending—sags. That results in severe inventory corrections as companies struggle to sell off existing stock.
The 2001 downturn departed from that pattern because inventory levels were running well below historical norms at the recession's outset. During the preceding decade, companies had invested in sophisticated demand planning and forecasting technology that eliminated the need for mountains of buffer stocks. That kept inventories from reaching dangerous levels, which averted a catastrophic backlash when the crash eventually came. Those same technologies, Lataif predicted, would help take the sting out of subsequent recessions.
Was he right? Given the stutter-step nature of the current economic recovery, it's a bit too early to tell. However, recent evidence suggests logistics and supply chain management did keep at least one sector afloat during the Great Recession of 2009. A study released in the fourth quarter of 2010 concluded that supply chain management was instrumental in helping the retail industry survive the meltdown.
The study, the 2010 State of the Retail Supply Chain report, was conducted across leading North American retailers by Auburn University in partnership with the Retail Industry Leaders Association (RILA). In their summary, the researchers drew a direct line between supply chain management (SCM) initiatives and the retailers' survival. According to RILA, the study found that "SCM cost-reduction initiatives lowered company expenses and [that] closer collaboration with merchants and store operations teams enabled significant increases in enterprise-wide operational efficiency. The continued focus on striking the right balance of inventory availability, cost control, and customer service allowed companies to better adapt to fluctuating consumer demand."
The story doesn't end there. The benefits of adopting state-of-the-art supply chain management practices will continue to accrue as business picks up, says Casey Chroust, RILA's executive vice president of retail operations. "Cost reduction initiatives introduced by supply chain management executives, [allowed] retailers ... to tap into existing opportunities to streamline their supply chains, lowering their bottom-line costs, and saving billions across the industry," Chroust said in a statement announcing the study's results. "Moving forward, these cost structure enhancements and efficiencies will enable retailers to thrive as the economy becomes healthy again."
But it's not enough just to keep up with the latest advances in supply chain management, warns Brian Gibson, a professor at Auburn University and leader of the RILA study. You have to get out in front of the crowd, he says.
"Retailers must establish best-in-class supply chain capabilities to remain competitive," Gibson said in a statement. "This year, leading-edge supply chain executives are pursuing agility, shelf-driven supply chain capabilities, and private-label manufacturing."
And so should you.
Gartner, Inc.
