January 1, 2009
special report | 2009 Economic Outlook

Ready for the storm

ready for the storm

Our exclusive survey shows that distribution managers weren't waiting around last fall for official pronouncements of a recession. They were already buckling up and hunkering down for a rough ride.

By James A. Cooke

DCV's readers haven't been sitting idly by as the nation slips further into recession—they're taking action in response to a rapidly deteriorating economy.

These actions have included putting projects on hold and laying off workers, while at the same time investing in equipment and software that will boost productivity in their distribution operations.

That's the picture that emerges from our exclusive 2009 Outlook survey—an online poll conducted among DCV's readers right after the presidential election in early November. A total of 335 readers completed the questionnaire. The majority of the respondents worked for either manufacturers (36 percent) or distributors (31 percent). The remainder worked for service providers (15 percent), retailers (8 percent), and other businesses (10 percent).

Not surprisingly, most survey respondents were bearish when it came to the economic outlook for 2009. About 43 percent said they were pessimistic about the economy overall. "This will be the worst year in three decades for manufacturers," one respondent said. Another 34 percent said they were unsure what was going to happen this year, while only 23 percent said they were optimistic about 2009.

When asked about the U.S. economy's growth prospects for this year, 38 percent of respondents said they expected growth to be flat, while another 33 percent said it would be weak. Just over a quarter— 26 percent—said growth would be down. Only 3 percent said they thought the economy would see strong growth this year.

As for their view of their own business, 67 percent said that their company's sales would be either flat or down, while 17 percent expected weak revenue. "Next year will be flat with an increase in sales but not in profits," one reader told us. Only 16 percent said sales would be strong.

Exhibit 1
Exhibit 2

First response
As corporations tighten their belts, distribution operations will likely feel the squeeze. Fifty-seven percent of the 335 survey respondents said they planned to make changes to their distribution operations in response to the poor economic conditions. Of those respondents, 38 percent said they would hold back or delay distribution projects. Another 35 percent planned to lay off employees and workers. However, only 16 percent said they would shutter warehouses or distribution centers. (See Exhibit 1.)

Although some companies are holding off on distribution projects, others are going ahead with investments in software and equipment. Fifteen percent of the survey respondents who planned to make changes to their distribution operations said they would install new material handling equipment to boost productivity. And more than a quarter (27 percent) said they planned to install new software applications—again, in hopes of enhancing output.

When asked which types of software they were contemplating buying, 14 percent of the survey respondents mentioned warehouse management systems. Another 8 percent said they planned to buy a transportation management system, while 7 percent said they expected to purchase a labor management package. (See Exhibit 2.)

The survey also asked companies about their plans for outsourcing logistics functions this year. Of the 37 percent of respondents who said they were currently using a thirdparty logistics service provider (3PL), 57 percent said their 3PL usage would remain the same in 2009. Twenty-seven percent expected to cut back on outsourcing, while 16 percent planned to step up their use of 3PLs.

For all the gloomy projections, the survey findings did reveal one bright spot: Fifty-nine percent of the respondents expected transportation rates to drop this year as a result of declining oil prices.

Overall, the comments of one respondent seemed to sum up the feelings of the group when it came to the challenges of managing in difficult economic times. Said the respondent, "Given the current state of the economy, those that have done things right and have kept a close watch on operations and expenses in good times will still be standing when economic conditions improve. This is the time to re-examine and reinforce the fundamentals of good management."

About the Author

James A. Cooke
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.

More articles by James A. Cooke

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