Growth is the corporate imperative. Companies drive growth through success in new product launch, growth in regional economies, and M&A activity. While growth in regional economies spurred growth in the period of 2006-2012, growth slowed to -1% in the period of 2013-2015. Recent news reports indicates that this trend could be worsening in the Asian markets of Japan and China.
Table 1. Household Products Growth Trends
Today supply chains respond better to increases in growth than downturns. The issue? Often, when market demand drops, companies go through a cycle of denial. Forecasts are based on historic order patterns, and sales and market incentives drive bias. Few companies have invested in outside-in processes to sense regional demand based on channel data. Corporate forecast error is increasing and bias from sales forecasting is unchecked. On average it took six months for companies to realign growth in the 2007 recession. These lessons from the 2007 downturn are not well-ingrained in supply chain management DNA.
Let's take a look at the news:
- Japan. The world's third-largest economy, behind the US and China, grew 1% on an annualized basis in the October-December period. This is a slower pace than the prior three quarters. The downturn in Chinese consumption is having a ripple effect.
- China. Slowing consumption in China is a warning for global manufacturers. Chinese retail sales growth fell to its slowest pace in 11 years. The Chinese government is walking a fine line between economy stimulus spending and industrial over-capacity.
Figure 1. Fall in Chinese Retail Consumption
The answer? Build cross-functional processes that are outside-in to sense the market using channel data. Challenge traditional forecasting and inventory practices and focus on market sensing, translation and inventory strategies. Asia is sneezing. Will it result in a cold? No one is certain, but it is time to build and implement Market-Driven Value Network strategies.
Wall Street Journal, Strong Chinese Data Contain One Warning Sign: Flagging Consumption, March 14, 2017
Wall Street Journal, Japan's Economy Slows Again, February 13, 2017