June/July 2009

Voices

Lessons learned: How the current economic downturn affected supply chain management and what can we learn from it

By D. Allan

I think we can all learn a few things from the events leading up to our current economic situation. Many of us who have been in the mining business and seen a few of these cycles throughout our careers may indeed wonder why we were not better prepared for the “inevitable.” In hindsight, it seems odd, for example, that we would have considered nickel being priced at $22 a pound as a normal or sustainable condition. Yet we did.

In order to learn from our past, as an industry, we must remember how things were just a few short months ago with the seemingly insurmountable demand for mining equipment. From 2004 until about the fall of 2008, the mining industry was booming. Commodities were at all-time highs and our equipment, services and parts were needed like never before. We were faced with unprecedented growth and expansion in our industry and were basically just trying to keep up with orders. As we focused on efforts to satisfy the surging demand, we slowly lost touch with ”reality” and missed some of the now evident warning signs indicating that such conditions would not last forever. The exuberance of the great times overtook us all, and sometimes sound fundamentals were suspended in favour of acting quickly.

The recent dramatic demand decline and its impact on organizations have proven to be the tip of an iceberg. We now clearly understand that the downturn is no short-term blip. Its impact on the supply chain is being felt across the entire supplier base. Until recently, we ran after skilled labour and built more capacities. Now, we are now faced with the unpleasant task of downsizing plants, equipment and people. To further exacerbate the problem, many manufacturers are also left with finished inventory as a result of evaporated demand and cancelled orders. Moreover, this is inventory that was produced using inputs that have been among the costliest on record.

As grim as this situation is, the understanding at Sandvik is that opportunities still exist. Our customers are wrestling with similar issues of contracting demand and higher costs of production. This is an excellent opportunity for us and other suppliers to show customers that we are not just here to “take the order,” but are also prepared to work with them to weather this difficult period. Now is the time to demonstrate our capabilities meaningfully.

Like all sensible suppliers, at Sandvik the goal is to emerge from this downturn by staying true to ourselves and helping our customers run their businesses better and more cost effectively. Through acquisitions over the past several years, we have assembled a wealth of expertise that we plan to share with our customers. Whether it is with new technology or improved application knowledge, our products will continue to be built with the intention of keeping miners’ costs down.

So how do we move forward and prepare for the future of supply chain management? First of all, we need to be more flexible. We need to learn to focus on what we do best and find alternate ways to meet demand in areas that, despite being attractive, are outside our core competence.

Secondly, it is important that we recalibrate our expectations of volume and demand and have more reasonable expectations of growth for our businesses. You cannot expect to grow exponentially every year and just have your supply chain automatically meet that demand. Demand must be properly forecasted and managed with a long-term sustainable view.

Lastly, we must understand that no one is an island. We are all linked in one way or another — customers are suppliers and suppliers are also customers. What happens in one part of the chain ultimately has an impact on the rest of the links. But none of these musings are particularly new. Perhaps the best lesson of all has been that history is indeed a great teacher.


Dan Allan is the president of Sandvik Mining and Construction, USA and Canada region.

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