Is the Economy Doing Too Well?

The year's early economic reports suggest a new supply-chain challenge for leaders in many sectors.

It’s almost too good. 

The first set of economic reports from around the world show that the world’s major economies are growing steadily, with orders for new goods increasing in Europe, China, and the United States.

But that economic growth appears to have a downside—manufacturers are having a hard time keeping up with demand. In the U.S., for instance, while manufacturing output rose in three of the last four months, so did backlogs and shipment delays. The delivery delays shoppers experienced this holiday season provide evidence of this dichotomy. For leaders, knowing what levers to pull across the entire supply chain—plan, source, make, and deliver—can be the difference between capitalizing on or suffocating under growing demand. 

“Consumers are looking for much faster response rates nowadays,” says Scott Adams, leader of Korn Ferry’s North American Supply Chain and Operations practice. “It comes down to speed and quality.”

With consumers not willing to wait six hours, never mind six days, for an order, the strategy of offshoring manufacturing is no longer viable for some firms. Adams points to the battle for warehousing near major metropolitan areas now taking place as an example of how organizations need to be closer to consumers to reach them quicker. “Manufacturing is no longer just taking orders from the sales group, building the product, and shipping it,” says Adams. “Sales and operations need to be tightly linked so that the manufacturing team knows what the sales and marketing teams are trying to push, what the lead time is, where to shelf the product, and what products can be eliminated to accommodate capacity.” It also helps if the organization has good third-party contract manufacturer relationships to offload some demand in a pinch.

One way manufacturers can ease the output strain is by raising prices. But, aside from the potential of triggering a rise in inflation, such a move could offset potential gains from the improving economy. Few things can kill consumer enthusiasm faster than higher prices. Another, perhaps more effective, way is to concentrate manufacturing around core products. Adams points to General Motors’ elimination of Pontiac, Saturn, and other brands as an example of an organization focusing on a few “lead horses.”

Figuring out those links isn’t simply a matter of looking at a spreadsheet, however. It requires leaders to break down organizational silos and foster a cross-pollination of ideas between and among divisions so that they are all sharing and connecting with each other. Having that organizational agility is critical for supply chain leaders to move at digital speed. “You can’t simply turn off or ramp up an assembly line,” says Adams. “Supply chain leaders need to have open communication with the rest of the organization to avoid a breakdown.”