The news from the marketplace continues to be dismal. Sales are down, profits are off, and the "soft landing" that had been predicted for the U.S. economy is no longer assured. The behavior of the economy seems to go beyond a reflex action to the past year's collapse of share prices on the Nasdaq. Some economists are suggesting that the bottom of the current down cycle might extend longer than a short quarterly dip.

What is a poor supply chain manager to do in the face of this bad news? There are a number of options that he or she can pursue, some far more advisable than others. One is to abandon the supply chain partners and declare that all joint actions must cease and desist. There is no room for collaboration when the law of the jungle is in force. If someone must feel the pain, it is your responsibility to make certain it is someone else in the supply chain. Under this option, you revert to survival mode and muscle vendors and intermediaries (and even customers if you think you can get away with it). In this bet-your-job kind of economic environment, this option has a powerful motivator—survival.

In the last issue, we identified a second option—the timely and effective integration of technology into the supply chain process. Done right, this can lessen the impact of an economic downturn. As we noted, however, there are significant risks to managing technology cycles. Plus, the integration process itself takes on some additional challenges during an economic downturn.

A third option is to focus on inventory reduction throughout the channel. In simple terms, if sales slow down and manufacturing output is not reduced accordingly, then inventory piles up in the channel. It might pile up in the lots of automobile dealers, or in department store backrooms, or in the manufacturers' warehouses. Wherever the build-up, the end result is a serious clogging of the channel. During a downturn, the surplus inventory eventually leads to layoffs. And that, in turn, leads to a weakening in consumer and business demand.

How and where inventory accumulates depends on how well the channel members understand the demand environment and how quickly they can take the necessary actions to cut orders, production, and payroll. It might be argued that with just-in-time, bar-coding, and other technology, demand signals are more quickly transmitted up into the channel. While this is true to some extent (although it tends to be more industry, or even company, specific), it is one thing to receive a signal that demand is dropping and another thing to do something about it in a timely way. There is little question that we're experiencing an inventory "overhang." And although the shape and depth of the downside of the latest economic cycle certainly will be influenced by Mr. Greenspan and the Federal Reserve, correcting that overhang is a key to recovery and growth. Until the inventory overhang is substantially reduced or eliminated, profit and new investment will be an elusive item of most operating plans.

One might ask how all of the highly touted supply chain software—ERP (enterprise resource planning), WMS (warehouse management system), APS (advanced planning and scheduling), CPFR (collaborative planning, forecasting, and replenishment), and other systems we've heard so much about—could have let this inventory build-up happen. If you believe the press clippings from the software vendors, the inventory management system should be functioning like a well-oiled machine. As the economy expanded for almost a decade, these technology solutions did seem to work well. Why then did they fail on the economic downside? One response might be that some of these systems do indeed work on the downside and some do not. Fair enough; you need to figure out which is which. Another response might be that users thought that their inventory management systems were on automatic pilot and didn't discover the crash until they found the wreckage. Yet another response might be "pilot error" in the sense that the supply chain manager saw a warning light but was unwilling to act.

We don't really know all of the reasons behind the inventory overhang. But we do know that we have one, and we need to find a way to fix it, working with our supply chain partners. In the long run, we cannot afford to cascade the problem downstream to our intermediaries and customers, or force it upstream to our vendors and suppliers. Although such actions might be expedient in the short term, they would undermine whatever trust and spirit of collaboration we built with our supply chain partners during the roaring '90s.

Closely related to the preceding approach is the fourth option: Exploring new opportunities for collaboration with supply chain partners. A strong body of research suggests that a primary requirement for a successful partnership is the sharing of benefits and burdens in the relationship. It is relatively easy to share benefits on the upside of the economic cycle. There is plenty of revenue to share with all of the partners without squeezing anybody out. But when sales and profits head south, the picture changes dramatically. Suddenly, you're operating in quicksand, a dangerous arena in which many relationships will likely founder or be seriously damaged.

What does collaboration really mean in today's economic context? Almost everyone in the supply chain is hurting to some degree. Are there collaborative strategies on inventory management, cost reduction, and process redesign that will make the supply chain more responsive on the downside? Are there ways of preserving and perhaps strengthening the relationship by sharing rather than shifting the burdens of the economic downturn? Finding the answers to these questions will help alleviate the pain and help all of the partners weather the turbulent times.

The option, or options, a supply chain manager chooses will have a significant impact on the future of supply chain management in the company and the future of supply chain management as a business process. If we choose to do nothing, then our default option is the first one—abandoning your supply chain partners. If that happens, the dark ages will return.