June 26, 2012

More than 60 years ago, did she know what was coming?

by Nancy Appelquist, Entira

In the 1950 film, "All About Eve," Bette Davis uttered one of the best-known — and most often misquoted — lines in all of moviedom: "Fasten your seat belts, it's going to be a bumpy night!"

When she said those words, Davis was talking to a group at a cocktail party where all the underlying tensions were ready to boil over. But her comment rings remarkably true for today's agribusiness, as well. Only instead of a bumpy night, it's been an exceedingly bumpy year — with underlying factors bubbling up to throw the industry into a series of exuberant highs followed by resounding lows.

How bumpy a ride has it been? And how can we smooth the road ahead? Here's what some leading supply chain professionals think.

The bumps we've already encountered ...

The instability of market forces. Overall, this is the biggest challenge supply chain groups face, making budgeting costs and planning for supply difficult at best. Just look at what happened with freight rates. First, fluctuating fuel prices created huge increases in trucking and ocean rates. Then, the rates virtually collapsed — at the same time rail pricing jumped.

The fertilizer business went through pretty much the same ride — going from the highs of overdemand and undersupply to the depths of oversupply and soft demand. In this case, international markets played a big role, namely the Chinese, Indian and Brazilian markets. Based on improving diets, these countries had an increased demand for US-grown products that pushed up the global demand for fertilizer, as well as fertilizer prices. Then, the global economic crisis hit. Less capital was available to buy fertilizer. There was an oversupply of the commodity. Prices declined. And plants shut down worldwide.

Surprisingly, peaks and troughs like these have actually produced some windfalls. Today, there's a driver surplus. So, if an unexpected demand hits, companies should be able to secure a driver to deliver the product with relative ease. Plus, the overall softening of the job market has reversed the trend of supply chain professionals being in short supply. High-quality talent is out there and looking for career opportunities.

And the bumps that lie ahead

Each year, agriculture is becoming more of a global business, and to paraphrase the Las Vegas Tourism slogan, "What happens in Europe, Asia and Latin America doesn't stay there." It's having an increasing effect on the US market. For example, the US has historically been the pre-eminent market when it came to positioning product. Now, overseas markets are more lucrative, and that's prompted companies to adjust product positioning to take advantage of these opportunities.

In addition, as ag companies operate in a more complex global environment, more advanced planning has become essential to ensure product supply — and that goes for everyone in the supply chain.

Unfortunately, this planning may not be easy for some. Growers, for instance, are currently facing challenges such as tightening credit that delays both long-term investment and short-term purchase decisions. And companies that have operated for years with phone orders and immediate delivery now have to look out 12-14 months to meet customer demand. 

Paving the way for the future

As a result, forecasting has become increasingly important. Some ag companies have already risen to the challenge. They've improved communication with suppliers and partners to build better forecasting models that enhance their ability to have inventory in place when and where their customers need it.

But forecasting alone won't cut it. To cope with market fluctuations and meet the need for long-range forecasts, ag supply chain groups must develop multiple scenarios and contingency plans. Simply put, instead of focusing on "How to?" agribusinesses must be ready to consider the question, "What if?"  

The answer to this rests, at least in part, in more sophisticated software tools and greater time devoted to analyzing supply chain activity. As the global supply chain lead from a large multinational ag company said, "IT has found a home in supply chain. We can use data to execute transactions, but we're also looking at contingency planning, customer profitability, marketing programs and product cost to improve profitability."

Consequently, IT can no longer be considered a luxury or an afterthought. Ag companies must utilize it wisely to analyze internal business processes. And, just as importantly, they must use it to link electronically with trading partners — or risk being left behind and at a competitive disadvantage.

Where will the ride end?

In the future, ag supply chain groups will need to work closely with commercial teams to achieve a competitive advantage through service levels, customer differentiation and marketing and cost savings. In this way, they'll actually turn the supply chain into a competitive weapon.   

To stay ahead of the volatile world market, ag companies will also have to design supply chains that are flexible and can rapidly adjust to change. In addition, multiple long- and short-term plans, along with the ability to execute each plan quickly and effectively, will be required for agribusinesses to be in the best position for profit maximization —  and customer satisfaction.

Ag companies must also remember that large investments in IT may give them the tools and information to make the best decisions, manage the supply chain and improve collaboration with suppliers and customers. But the right staff is necessary to analyze and manage the large amount of information being generated. That means recruiting personnel well-versed in supply chain, IT and marketing will become a necessity.

Change, quite frankly, is necessary to keep up with change. And waiting for the next shoe to drop isn't an option. Now is the time to invest in infrastructure ... to redesign supply chains ... to herald a new era of cooperation ... and to hire the best professionals while they, too, search for new opportunities. Bumpy times may be ahead. But ag companies that prepare for them now won't fall as far as — and will bounce higher than - those that hesitate to act. Call Entira at 901.753.0470 or email mkarst@entira.net if you would like to discuss an outside perspective on maximizing the value of your supply chain.

This article appeared in the September 2009 issue of Strategic Agribusiness Review.