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The 'New Normal' and Its Effects on Supply Chain Management

By Mac Cutchins

Senior managers in many businesses are using the catchphrase "The New Normal" as if it were a prescient view of the way things will be from now on. For those managers this view is unfortunate because their perception of The New Normal suggests a sort of baleful future in which everyone will have to do with less.

In the supply chain management space, the New Normal perception usually translates to "fear driven." And that usually manifests itself in one of two reactions.

Hunkering Down: aka The Ostrich Effect
One response is to hunker down and attempt to minimize capital expenditures. This mindset does not seek opportunities to solve problems; rather, it seeks opportunities to cut back in infrastructure investments. In effect, the executive committees or CEOs are saying, "Our crystal ball is broken. We're now in a new paradigm and we don't know what is going to happen. So, we're going to postpone new projects from quarter to quarter, or else cancel them." But many of these companies are experiencing increases in operating expenses - even though revenues are down or flat - and are leaking cash.

Taking Action
A contrasting response that is also fear driven is when managers recognize that sales are flat, or they are experiencing inventory issues, or should be more efficient. They don't know how long market turbulence is going to last, but know that costs are going up and realize they need to reduce labor or increase efficiency.

These companies are aware of how inefficiency and inaccuracy are damaging their businesses, especially during a recession. Most importantly, they recognize the need to take action.

Rather than bury their heads in the sand and postpone projects, such companies are capable of sensing and responding to changes in demand, especially when the number of orders spike above expectation. They are taking advantage of the extraordinary low cost of capital to invest in infrastructure, often experiencing cash flow positive results by reducing operating costs.

Multiple Distribution Modalities
A good example of this capability is demonstrated by an Intek Warehouse Librarian customer who operates three very different businesses out of one distribution center. They have a brick & mortar business with approximately 60 stores as well as a substantial mail order catalog business and an e-commerce business that accounts for a significant amount of their revenues. Obviously the orders generated by these different businesses create the need for a very flexible warehouse management system that can efficiently support orders varying from hundreds of items for each of the firm's stores to only a few or even one item for its catalog or e-commerce businesses. It takes a very robust inventory management system to respond efficiently to those divergent orders. So, even though retail sales are flat, the company found implementing the new WMS would maximize the efficiency of handling all types of order and would also help to prevent labor costs from creeping up.

Another example of reducing labor costs is to use multi-strategy picking technologies, including the new voice recognition capability, that is being offered by supply chain execution providers such as Intek. Although upgrading to those technologies or modules obviously involves some investment, it can provide far more efficient hands-free operation that will not only save on labor but also improve the overall efficiency of many distribution centers.

A NEW New Normal
Since most decisions today are driven by economic conditions, which are always transitory, perhaps we should consider a NEW New Normal. It's a frame of mind where we choose to take the risk of utilizing practices that always work whatever the conditions are. So perhaps the perspective we should take is that, although things have changed and will continue to change, sound principles remain intact.

About the Author
Mac Cutchins is Chairman and CEO of Intek Integration Technologies. Intek Integration Technologies, Inc. is a software company specializing in supply chain execution, including warehouse management and automation control.

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