Gerry Walsh, Lenono's SVP Global Supply Chain joins SCM World's Speaker Faculty

During the sudden economic downturn in 2008, Lenovo, like many other companies, was faced with reduced market demand. The challenging economic environment accelerated the need for change across all of its business units. To use Stephen Covey's framework, what was "important, but not urgent” in the past, became "important and urgent” in the present. The ability to act quickly, shift strategy, and effectively respond to market conditions is an important aspect of being able to navigate through the storm. Simply put – agility is a must in a recession.

Lenovo took decisive actions in response to the economic downturn in order to align the overall business with the changing marketplace. The company focused on clarifying its strategy, extending its lean cost structure, enhancing business model competitiveness and aligning products with market opportunities.

The two-pronged business strategy, articulated in early 2009, consists of attacking high-growth opportunities in transactional and emerging markets, while protecting core businesses in China and the global commercial market. This strategy extends the lean cost structure in China, while leveraging Lenovo's industry leading, customer-focused innovation engine around the world.

With renewed focus on its strategy, Lenovo initiated a worldwide restructuring program in early 2009 in order to become more cost competitive and operationally efficient. At the same time, Lenovo realigned its organization to support an integrated, end-to-end business model tailored to specific customer needs.

The company created a structure that transcends traditional geographic borders to better serve customers based on the preferences, priorities and requirements that they share regardless of national boundaries and old-world barriers. The new model is comprised of two business units, one dedicated to emerging market customers, the other to mature market customers. Teams are organized on the basis of skills and experience relevant to the target market, rather than to the country of origin.

In a recession, this type of business realignment must be done quickly, as the speed of change becomes more important than ever. Responding to the new market conditions and weathering the storm necessitates agility across the company. Lenovo's new structure better enables it to anticipate and serve the needs of customers around the world.

This new business model also required alignment of the supply chain to the customers in each market. To do this, the supply chain focused on tailoring its operations to customer needs, closely managing supplier risk caused by volatile market conditions, and executing to key performance indicators via a rigorous management system.

Organizational structure is one of the foundations for an effective supply chain. Faced with resource reductions, significant changes in marketplace and global economic dynamics, Lenovo integrated teams end-to-end to achieve greater efficiency and faster time to market. The company organized its supply chain team to maintain centralization of critical global functions (such as procurement, manufacturing and logistics) to drive best practices while aligning the customer support functions to the emerging and mature markets. This organizational change better positioned the supply chain to aggressively drive cost reductions and improve serviceability to its customers.

Traditional Lenovo commercial relationship customers demand a highly flexible and responsive supply chain model capable of delivering premium products and mass customization. New customers in the transactional space – emerging markets, consumers and small businesses – place a greater premium on predictability, efficiency, and low cost.

One-size-fits all supply chain solutions no longer adequately support the needs of customers within the complex PC marketplace in which Lenovo competes. A new breed of supply chain model is required to better support emerging market segments that are increasingly powering new revenue growth within the PC sector. Lenovo's response to changing market trends is a differentiated set of supply chain models capable of supporting traditional Lenovo accounts while attracting new business from emerging market segments. The customer value proposition is at the heart of Lenovo's approach to supply chain design.

With so much emphasis on cost savings in an economic downturn, it's easy to resort to cutting internal transformation initiatives and focus simply on the core business processes to weather the storm. However, in a slowing economy, budgets are cut but spending does not stop entirely. Priorities among customers may change. It is likely that customers still have a need for products but are willing to compromise on features in order to save money. To meet these changing requirements, all areas of the business must be examined to eliminate waste and streamline processes within the organization.

Again, agility becomes a key differentiator. Shifting the supply chain to align with customer requirements necessitates thorough evaluation of product offerings, processes and end-to-end costs. This is the time for the product development and procurement teams to take a closer look at product design and parts sourcing to determine what tradeoffs can be made to meet the new benchmark for customer value.

The use of Lean Six Sigma (LSS) within Lenovo's global supply chain resulted in a focused effort to reduce portfolio complexity, redesign products to meet lower price points, simplify materials management, and reduce manufacturing cycle times. The key to success is to ensure all functions across the company interlock and work toward the same objective. For example, the development team, planning department, procurement experts and logistics team all need to be working together to jointly drive down costs.

Now more than ever, risk management within the supply chain should be at the top of the list for navigating the storm. The global scope of the financial crisis means that companies must have deeper focus on their supply base in all parts of the world. Suppliers are suffering similar business challenges and, unfortunately, the downturn in the economy has forced some out of business. Such volatility in the marketplace has forced new practices to managing supplier risk.

The recession requires companies to more closely examine suppliers' operations and extend deeper into the supply chain, by evaluating not only first tier, but second and third tier suppliers. Likewise, the focus cannot only be on suppliers of highly specialized or high volume components. Companies should not overlook the risk of losing a vendor that makes basic, yet essential, parts. The loss of either could result in a significant supply chain disruption.

For business continuity, it is critical to identify secondary sources of supply and qualify them ahead of time, so that they can be brought on board quickly if there is any disruption to the primary sources of supply. A company that does not have a detailed supply chain contingency plan in place jeopardizes its own operations if a supplier goes out of business. Supply chain risk, however, goes beyond just the loss of a critical supplier. Companies may find their suppliers falling behind on production schedules or see a decline in quality standards due to reduction in staff. This requires closer monitoring of supplier operations in the ways companies may have not been used to in the past.

Thus, it is important to realize that the supply chain extends beyond company boundaries and that only by working together with suppliers can we weather the storm and emerge strong, well positioned and ready to compete. A key strategy for mutual survival and longevity becomes negotiating long term agreements with suppliers. This type of collaboration provides for greater visibility within the end-to-end supply chain and enables increased responsiveness to changing market conditions.

During the economic downturn, an intense focus on execution becomes the key to agility, efficiency and turning losses into profits. It is particularly important to set forth clear performance metrics, ensure resource alignment and closely monitor progress. While these are best practices in any company or economy, they become the drivers for change and a way to successfully manage transformation. In an unstable economy, this management approach requires a doubling of efforts on execution, and it is critical for responding quickly to changing market conditions. The performance metrics that might have been monitored on a weekly basis in the past, now need even more frequent evaluations.

In order to improve execution, the right set of key performance indicators have to be put in place, then measured via a rigorous business management system. Keeping a pulse on performance requires a daily commitment to execute, as well as frequent monitoring by executive management. A strong management system also provides the team with support when challenges arise and decisions need to be made quickly. In the midst of a storm, this is a critical element that provides navigation as well as some sense of stability for the teams.

The combination of clear performance metrics and a solid management system enables the team to focus and take quick, decisive actions when a change in the market or execution occurs. It also provides a forum to push forward ideas and new ways of doing business. Alignment of teams to the strategic goals, coupled with a strong management system to monitor progress, ensures that employees are empowered to make decisions and commitments are met.

Lenovo, like many other companies during the economic slowdown, faced numerous supply chain challenges to deliver the highest quality products in the most efficient and cost effective manner possible. Lenovo took decisive actions to realign its business and refocus the supply chain to improve speed and efficiency while managing risks. By aligning its supply chain to the company's strategy and customer priorities, Lenovo has been able to navigate the storm faster than many companies and is beginning to see positive results in its financial performance.

There is still a great deal of work – and risk – ahead to ensure that momentum can be sustained as the global economic situation stabilizes. The lessons learned during the recession must not be forgotten as the economy improves. Companies like Lenovo must remain flexible and agile, always willing to adjust operations in order to continuously drive improvements. The risks, as we all know, are high but the rewards of remaining committed to a strategy, adapting to change and executing with excellence every day will pay off in the long run.

Lenovo is dedicated to building exceptionally engineered PCs. Lenovo's business model is built on innovation, operational efficiency and customer satisfaction as well as a focus on investment in emerging markets. Formed by Lenovo Group's acquisition of the former IBM Personal Computing Division, Lenovo develops, manufactures and markets reliable, high-quality, secure, and easy-to-use technology products and services worldwide. Lenovo has major research centers in Yamato, Japan; Beijing, China; and Raleigh, North Carolina.

Today, Lenovo has over 23,000 employees globally and $15B in revenues annually. With employees in over 60+ countries and customers in over 160+ countries, the most important success factor at Lenovo is that we operate without borders – our resources and ideas are creative, dispersed and mobile.

This strategy has helped Lenovo achieve remarkable advancements since the acquisition, continuing the strong history of innovation across all product lines, increasing operational effectiveness and improving customer satisfaction.

SCM World, a RaptureWorld company, is the leading online global institute for supply chain executives. Hosting a dynamic and interactive annual programme of end-user and academic-led webinars for its members, SCM World is fast becoming the de-facto benchmark for forward-thinking supply chain leaders and their global teams to stay current through cutting edge webinar content, without the time and costs associated with traditional physical conferences.

Organisations from across multiple industry verticals use SCM World to further enhance supply chain learning and development, including the likes of HP, Nokia, Best Buy, RIM, Tesco, Nike, Cisco, Nestle, Shell, GlaxoSmithKline, Baxter Healthcare, Tenneco Automotive, Motorola, Levis, Dow Chemical, BASF, Applied Materials and many more.

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Gerry Walsh, Lenono's SVP Global Supply Chain joins SCM World's Speaker Faculty