The Sequester and its Possible Effect on the Supply Chain

March 11, 2013
The sequester will have an effect on the government supply chain...especially those not well prepared.

By now we’re all aware of the “Sequester” and its ominous potential disruption to our government and the economy. I for one don’t fully understand how an $85 billion cut for this year on an over $3 trillion budget (or the 1/3 part of it that will be effected, know as “discretionary funding”) can have that big of a consequence.

Those of us in the business world have all been through 5-10% cuts at one time or another and survived, even though it can be somewhat painful (i.e. wage freezes, furloughs and even layoffs for example).

In any case, it got me thinking about companies that are further up the Supply Chain and how they might be effected. According to an article on Bloomberg News (Sequester Looms as Threat to Small Firms in Defense Supply Chain), there will be a significant negative effect on smaller machine shop businesses that supply the nation’s defense system.

Unfortunately, many of those types of businesses, are “living hand to mouth”, and “don’t have the capital or credit to sustain themselves” during sequestration, according to the article.

I suppose that being in a “job shop” industry has its risks, including something that I’ve noticed when visiting smaller machine shops…their dependence on, in many cases, a few large customers (and/or supplying a limited number of industries) and a general lack of strategic planning.  This may be somewhat due to the nature of the business, but can, to some degree, be avoided.

I’ve always felt that if they, and in fact, all small to medium sized businesses, generated (and updated) a Strategic Growth Plan, they would have a roadmap to help get through these types of tough times. In fact I was involved in developing one for a New Jersey-based metal stamping business a few years back, which eventually reaped some large dividends after implementation.

While job shops can only implement some, but not all, Lean concepts to minimize costs, improve quality and increase throughput due to the nature of their business (Total Productive Maintenance and 5S work well in a job shop environment for example), they also have the somewhat unique ability to serve many types of customers and therefore have more options when times get tough. A Strategic Growth Plan can help them to do this successfully.

So it is always good to keep in mind that Lean tools, while important to any kind of business, are far more effective when combined with a Strategic Growth Plan.

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