Supply Chain Management Cost Cutting: Smart Decisions


describe the imageBecause the shipping and retail industries are some of the most affected by downturns in the global economy, their leaders are constantly searching for ways to cuts costs and improve the bottom line. Unfortunately, that can prompt many industry leaders and decision makers to make sacrifices to certain areas of business operations that may suffer as a result. One important aspect of supply chain management is knowing what areas can have some funding cut and what operations must remain intact to ensure fluid transactions between entities.

Expert opinions                                                                       

At a recent supply chain management conference, Julian Stephens, technical development manager explained how the complex supply chain operations companies are managing today are constantly evolving. The modern supply chain must be able to withstand permanent disruption and remain flexible in order to respond to changes quickly and efficiently.

"The ability to respond dynamically to changes increases flexibility and customer service but actually reduces cost by making better use of resources," Stephens told attendees.

Corporate boardrooms, however, are looking to many aspects of the supply chain to reduce spending while increasing expectations. When suppliers in the chain of operations have costs cut, they often become less inclined or unable to offer dynamic options to ensure flexibility to changes and adjustments, The Load Star reported.

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.

In an interview with the source, Ram Menen, a supply chain manager, explained how many supply chains now allow procurement professionals to control purchasing decisions and operations, rather than supply chain managers. This can be a mistake, leaving supply chain managers out of the loop, demonstrating an inefficient use of talent resources.

"Best is to create economies of scope by leveraging somebody else's economies of scale," Menen explained.

Sean Smith, another logistics professional, joined the discussion to add that too much emphasis on cost when reviewing supply chain operations can hinder a manager's ability to work on creating economies of scope. Thus, many shippers are extending payment terms to enable companies to focus less on cost through more affordable payment options. This will prevent managers from being negatively impacted by supply chain management cuts.

"The strength of all business is in its cash flow, and some shippers are just 'playing the game' and using their buying power," Smith said. "Others can probably not afford to cover the cost of their shipping until they have sold their goods."

You’ve heard it straight from some of the top industry supply chain and procurement experts: cutting costs is always desirable, but it needs to be done tactfully. Weakening one link of the supply chain by cutting major funds may improve your bottom line in the short term, but ultimately will cause problems further down the line. Longer terms of contract with lower payments are the key to cutting costs.

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