The Importance Of Supply Chain Management In US economy?

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Recessions are true test of Efficiency

The best thing about a recession is that it separates the leaders from the rest. In a growth economy when everyone is flourishing, any company can easily survive even if its not very efficient. However recessions make sure all the inefficient players in the business close their shops and let the leaders do the surviving act. Hence the efficiency of the entire system overall goes up.

The current recession also gave a glimpse of the above phenomena in the retail and manufacturing industry. According to the Commerce department, at the beginning of 2009 the inventory to sales ratio had increased to as 1.46. Lets take a moment to digest that fact. That essentially means that there was almost one extra item for every two that were needed.  The pre-recession numbers were at 1.28 which is still a little high since very efficient systems should be tending towards 1.  This mostly happened because the sales went down substantially while manufacturers and retailers were not able to match it by reduction in their inventory levels.

Inventory to Sales Ratio Matters!

Therefore we saw the problems balloon up for a lot of companies like Macys and GM. GM almost became bankrupt and Macy’s was on the verge of bankruptcy. However the companies that managed through this recession in flying colors were companies who got their supply chain and inventory management in order. During the same time Walmart (WMT) stocks have jumped 10% in last one year . Amazon shares also went up by 86% while F managed a 500% increase in their share prices. All companies managed to downsize their inventories to the levels where they were in line with market demands.  Fast forward to right now; economy is coming out of recession. According to commerce department retail sales went up 0.5% in January. This was higher than forecast. Still GM and Macys are still struggling with their inventory management . On the other hand Ford, Walmart and Amazon are showing incredible results and increasing their sales. Ford has been continuously gaining market share for last 6 months. Amazon shared their best earning result this quarter.

Well Managed Supply Chain can Thrive a Company

Ford, Walmart and Amazon have shown again to the world how important supply chain and inventory management could be in the survival of a company during recession and in the ultimate growth of the company during booming economy. The stock market has been rewarding to the CEO’s of all three companies for their fore vision to keep their companies lean so that they can survive in any economy.