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These days, everyone is looking to cut costs. This is especially true in the world of supply chain management. Too often people try to cut costs quickly. This can lead to poor choices that can be extremely detrimental in the long run. An article fro

Supply Chain Management Cost Cutting: Smart Decisions

cut2_emailThese days, everyone is looking to cut costs.  This is especially true in the world of supply chain management.  Too often people try to cut costs quickly.  This can lead to poor choices that can be extremely detrimental in the long run.  An article from Oxford Business Technology Blog highlights the importance of being able to discern what areas and operations can survive with after a cut and which ones must remain full intact to be successful. At the same time, corporate level individuals expect costs to be cut while expectations and standards become higher.  Cutting costs in certain areas can lead to a sharp decrease in the services those areas are able to offer.  In other words, demanding higher standards after necessary things have been cut is simply unrealistic.  However, the article suggests that there are solutions available:

 To remedy this, having a long-term vision is beneficial.  Cutting costs in the short term at one point within the supply chain, such as a contract with a certain warehouse, might not affect the point of the cost negotiation.  A manager might take a pay cut, or less seasonal packers will be hired.  No big deal, right?  That couldn’t be more wrong.  Long-term and often unseen problems come further down the line and many times your business’ paying customers are the ones feeling the brunt of cost-cutting.  With fewer workers overall and less motivated workers within the warehouse, quality issues can arise.  Backorders and sold-out stock become very problematic.  Quality means having the funds available to provide flexibility to handle the inevitable disruptions within the supply chain.

According to an interview with supply chain manager Ram Menen, many supply chains currently have hired professionals making the purchasing decisions instead of supply chain managers.  Although this might sound like an effective way to attack cost cutting, it can really cause a number of problems.  First of all, leaving supply chain managers out of the loop is always dangerous.  The greater issue here is that, as the article points out, having a separate individual focused on purchasing decisions may just be an inefficient use of talent. Furthermore, focusing too much attention on cost and making quick decisions can have a negative effect on “a manager’s ability to work on creating economies of scope.”  To combat this focus on cost, the article notes that many shipping companies are now offering extended payment options. 

 This not only prevents poorly thought out cost related decisions, but it saves the role of supply chain managers as well. The truth of the matter is that cutting costs will always be desired.  There is simply no way around this.  There is, however, a smart way and a not-so-smart way to go about doing it.  Cutting out the role of the supply chain manager is unwise, and truthfully there is usually a way around it.  Be sure your decisions are well thought out before taking action.  See if your shippers will extend payment terms.  Focus on the long term rather than the short term.  The article concludes by remind us that “longer terms of contract with lower payments are the key to cutting costs.”

About Anne Grybowski

Anne is a former staff writer for CAI's Accelerating IT Success, with a degree in Media Studies from Penn State University.

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