Diamond Report Says Volatile Times Call for Supply Chain Flexibility

CHICAGO--(BUSINESS WIRE)--With unprecedented volatility among commodity prices, credit, currency valuations, and global equity markets, companies that focus on only one of these supply chain variables lack the ability to extinguish fires on multiple fronts, according to a new research report by Diamond Management & Technology Consultants, Inc. (NASDAQ: DTPI).

“Lowering the Volatility Quotient with a Flexible Supply Chain”

For example, some companies reengineered their supply chains by shifting production from overseas to local markets when crude oil closed in on $100 a barrel a year ago—and redoubled those efforts as the price eclipsed $140 in July. Now, oil prices are down significantly, but the same companies are strapped for capital because management failed to anticipate the severity of the credit crunch.

“As a result of volatility in the markets, many businesses are more reactive than they should be, addressing single pain points like labor, transportation, sourcing, or inventory while potentially setting other problems in motion,” said Darin Yug, a partner and supply chain specialist at Diamond.

“We believe companies need to reexamine all the rules and assumptions used to optimize their existing supply chain strategies—whether they are lean, just-in-time, or low-cost country sourcing,” said Yug. “There is no ‘silver bullet’ for containing supply chain volatility, but there is a specific starting point for success.”

The Diamond report, “Lowering the Volatility Quotient with a Flexible Supply Chain,” shows that companies across industries are working to survive in a challenging environment with less working capital, accelerated margin pressures, limited access to credit, and dampened volume growth. These companies risk a significant loss in shareholder value if they do not effectively control volatility in their supply chains.

“Today’s unpredictable landscape requires that companies identify performance optimization variables within their organizations and then develop an approach that fosters accurate and rapid responses to critical changes among the variables,” said Yug.

The Diamond report details a six-step strategy for driving supply chain performance by increasing the capability to monitor and respond to volatile supply chain variables:

1. Understand the key variables that impact your supply chain. Look for volatility broadly across five core elements of the supply chain, including: Plan (supply, demand, inventory); Buy (sourcing location, warehouse capacity, supply quantity and quality); Make (location, schedule, labor, rate of output); and Deliver (delivery schedule, load, route, transportation mode) and Return (quantity, salvage, cost of disposition).

2. Differentiate between “temporary” change and “structural” change. For example, a consumer products manufacturer needs to monitor and respond to temporary fluctuations in the price of metals that go into their packaging but should also look for larger trends that could warrant a shift to plastic packaging. The capital required for that structural change would outweigh the significance of easing day-to-day price volatility.

3. Establish trigger levels at which those variables dictate changes to your tactics. Companies that actively anticipate the future will be able to execute changes more quickly than the competition. Consider a future state in which a variety of key variables are changing.

4. Monitor in real-time (or as close as you can get). Instead of relying on monthly or quarterly ERP data, increase your information analytics capabilities to collect, analyze, and apply data dynamically to determine the best short-term responses to volatility and more accurately monitor emerging structural change.

5. Build an “emergency response” capability to implement changes dictated by changes in your key variables. Create a systematic plan and establish decision rights so there are no surprises in responding to volatile changes in the supply chain.

6. Move now. After two decades of relative stability, wildly fluctuating oil prices, interest rates, and other important supply chain variables appear headed for constant volatility. Adding rapid monitoring and response capabilities can empower chief operating officers to take advantage of volatility, rather than suffer from it. Short-term benefits can yield millions of dollars in savings while the long-term rewards of such a strategy—superior economic performance, competitiveness, and the flexibility to cope with future volatility—can mean the difference between simply surviving or thriving in uncertain times.

“Monitoring volatility requires information and, unfortunately, many companies struggle to extract the right data from their systems. By uncovering the insightful analytics buried under a mountain of data, companies can help improve management’s decision-making skills, which can lead to significant top- and bottom-line growth,” said Yug.

A complete copy of the report, “Lowering the Volatility Quotient with a Flexible Supply Chain,” is available upon request to: volatility@diamondconsultants.com.

About Diamond

Diamond (NASDAQ: DTPI) is a management and technology consulting firm. Recognizing that information and technology shape market dynamics, Diamond’s small teams of experts work across functional and organizational boundaries to develop new strategies, improve operations, and deliver results. Since the greatest value in a strategy, and its highest risk, resides in its implementation, Diamond also provides proven execution capabilities. We deliver three critical elements to every project: fact-based objectivity, spirited collaboration, and sustainable results. To learn more visit www.diamondconsultants.com.