IS YOUR BUSINESS POISED, AS READY TO SEIZE OPPORTUNITIES, AS IT IS TO DODGE ISSUES BEFORE THEY STRIKE?

Charles Darwin noted it is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. While the eminent Naturalist was observing evolution in the animal kingdom, I submit that this quote is equally applicable to our business world.

In business being the first to react to an emerging opportunity can translate to enormous financial gain. Being slow to respond to a softening market can create enormous pressure on cash flow and has seen many businesses go the way of the Dodo.

The first 6 months of 2011 has been a time when almost every Australian manufacturer will have felt a major disruption to their supply chain. Whether, it has been floods in Queensland, earthquakes in New Zealand, tsunamis in Japan, volcanoes in Chile or armed conflicts closing the Suez canal, disruptions to domestic and global supply chains have been immense.

It is time to reflect how your company has performed during this period. Did it navigate its’ way through these difficult challenges or did you have to wait for the water to recede to see the consequences?

If it is the latter, then you have experienced a gap in your business planning capabilities. Those who navigated through the challenges had scenario management capability. To define scenario management; it is the ability to change your consumption forecasts, production capacity, inventory levels and customer service levels with full visibility of the consequences on your operational and working capital costs. Having the financial consequences of multiple scenarios gives your decision making capability real clarity when your business environment changes over night.

Let us use the example of the Christchurch earthquake and assume you have a manufacturing site there. Also, you have other manufacturing sites in the Australia and New Zealand region. You get the news late afternoon of the disaster. What are the questions you need answered?

Is your factory affected? Is it destroyed? Is it structurally sound? Does it have essential services? When will you get them? How have your customers been affected? Which ones, and are they still operating, or when will they be? How are your employees affected? Have you got inventory in the warehouse in Christchurch? Is the stock destroyed or can you get it?

Some of these questions may take weeks to get an answer, but you now have to make decisions which will have huge impacts on your profitably. This is where scenario management comes in. You can quickly use logic to distill a number of scenarios from those questions above that will assist you manage your business most profitably. If you can do the scenarios in a day or two you will have trigger points for your decision making process as facts come to light over the coming weeks and months. The benefit is that you will have a full understanding of the detailed costs involved at each of the trigger points. Although you have suffered a disaster, you are now enabled to proactively manage the business through this difficult time. This is proactive management that can add percent points to your EBITDA.

VISY PET Beverages Christchurch used Prophit Systems software to navigate this particular example.