Innovation needed in downturn

However, in the process people often neglect one of the important profit-generation mechanisms supported by demand management - that is, making sure that the business has enough stock of the goods customers want, when they want them.

Instead of focusing only on cost cutting, companies should also pay attention to existing demand management processes to generate more business and improve profitability. Reacting to the situation by cutting costs is one side of the coin, but the other is to revisit the demand management process and accelerate demand generation - for example, by innovating around new products and services, or focusing on the needs of the most valuable customers.

R&D investment continues

A recent McKinsey research study found that most senior executives across the globe are continuing to invest in R&D, even though the downturn has caused cuts in spend in other areas. While some companies are reducing spend on innovation and R&D, other companies are using it to strengthen their longer-term competitive advantage. The study found that, while fully three-quarters of companies surveyed had cut their operational costs and 45% their marketing costs, only one third had cut R&D costs.

Innovation and R&D can focus very profitably on the supply chain in a time of economic crisis. For example, this can be done by evaluating the commercial models organisations have with their supply chain partners and suppliers. A more flexible and sustainable approach that establishes a partnership model is more likely to enable the development of a plan that gets the organisation through the next few months, while strengthening it for the next cycle and upturn.

The current scenario presents opportunities for companies to force change where it has been needed for some time. On a strategic level, success in a downturn is not going to come from acting alone - no company or nation is an island, even less so in a globalised economy. It will take teams, and close collaboration between suppliers and their customers, to see it through successfully. Those organisations, which see the downturn as a strategic opportunity to build innovation, will be better placed to succeed when the cycle turns up once more.