5 Lessons for Supply Chains from the Financial Crisis

This is an excerpt of the original article. It was written for the May-June 2020 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2020

Most of the time, when I sit down to write this column I look at what I wrote for the previous year’s issue for perspective or inspiration. The truth is, nothing I’ve written before, or experienced in my 64 years, has prepared me for COVID-19. I’m sure that most, if not all, of you can say the same. Yes, it’s a global crisis, but closer to home, it’s a supply chain crisis. Quite simply, even the best supply chains, at least those that are still operating, are broken.

Browse this issue archive.

Already a subscriber? Access full edition now.

Need Help?

Contact customer service

847-559-7581   More options

Not a subscriber? Start your magazine subscription.

Firms have always been challenged to adapt their supply chains to their success in the market. During boom periods, firms are eager to avoid costly backlogs, to align manufacturing capacities with growing demand, and to ensure raw materials from new suppliers. Meanwhile, supply chains are accelerated, costly air freight is accepted, and large batches are produced because goods will be sold at some stage. In contrast, during difficult times, firms must address shrinking customer orders, face increasing competition, and see decreasing margins. Accordingly, priorities for supply chains differ significantly. Firms must focus on cutting costs, reducing capacities, consolidating suppliers, and freeing up cash by taking out inventory.

Difficult times frequently relate to an individual firm’s situation: These could include poor top management decisions, cost pressures from a new competitor, or demand being hit by poor customer service. However, difficult times are also frequently caused by changing economic climates.

During the Financial Crisis that started five years ago, an unforeseen contraction in demand across numerous industries challenged supply chains globally beyond anything observed in the past. As the economy continued to drift downward, a significant turning point occurred on September 15, 2008, when Lehman Brothers, the fourth largest U.S. investment bank at that time, declared bankruptcy. The collapse of Lehman Brothers sent a shockwave through the financial world and triggered an unprecedented decline in the global economy.

SC
MR