b-school, Economics, MBA, Microeconomy

(The mistake of) further leaning the supply chain in difficult times

Operations have always interested me. I’ve worked with supply chains, studied them, comprehended them. But, what I don’t understand, is why that motto of “leaning the supply chain” is considered an universal truth. Reminds me that one of “leaning -and trimming- the organisation” whose long-term results -only now are beginning to be known.

Because sometimes leaner is simply not the most adequate choice. Sometimes you need to be able to offer greater flexibility, better response, even at a greater cost.

What did prompt this reflection in my mind? Well, a friend of mine wanted to buy a new car, so I told him it would be a good moment because the car sales had dropped around 10% this year in Spain.

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It looks like the bargaining power of customers has increased, hasn’t it?

Well. In fact something slightly different has happened. Concessionaires have resolved to reduce costs, specially reducing stock. They only have the star models, but not anything that may be a little customised. That means nine months for my friend to get the model he wants. Can you imagine that?

I understand that promoting a series of basic models by penalising the consumption of the rest of the catalogue is a way to reduce variability and variety. But that could be useful in a highly busy and stressed supply chain and that’s not exactly the case.

In this case I understand we should focus the supply chain in some strategical intent to promote sales in a weak season. That way we shouldn’t want to reduce variety but induce new sales. And that means offering an appealing selection for the customer and an improved service. I don’t exactly see improved service with lead times around nine months.

In this case, the savings are surely lower than the opportunity cost of not selling a model. Specially when you still have plenty of space left in the premises (I bet they have not shrunk because of market’s weakness), and specially when competitors may have chosen a different strategy.

Sometimes some savings are simply not worth it.

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2 thoughts on “(The mistake of) further leaning the supply chain in difficult times

  1. Well… actually not all cars have dropped sales. It seems that SUVs and sport cars are still being sold at a good pace. More conventional engines are another story…

    Another interesting thing is to observe the differences between dealers in Spain and, say, the US. Probably your assumption would be right in the US: less demand means you’ll have to catch the prospective buyer by luring her. But Spain is different in many things… and one of them is precisely this one. Unfortunately most Spanish markets are everything but a free market.

  2. Every time we need to look for imperfect markets we don’t have to look afar. My friend probably went somewhere else and found a similar situation. Maybe things would change if you were able to drive 150km further north, to France, and simply buy a car there. But, regardless of us being in the European Union, it simply isn’t so.

    Best regards David

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