The Strategy of Supply Chain Cost Reduction

In the era of recession every industry wants to rationalize their spend by initializing various strategies to cut costs. But do cutting costs across the board is the right way of achieving success is recession?

There are various views on this while most companies are doing aggressive cuts in all sphere of business like payroll, advertising, consulting, strategic initiatives etc. But again is it the right approach? Jim Tompkins (of Tompkins Associates) recently published a very detailed article on this where he emphasized on the fact that cut, cut, cut across the board is not a right strategy.

The cost in an organization can be broken into three categorize i.e Capitol and operating costs, Talent and Resource cost and strategic costs.

While Capitol and Operating costs are traditional ongoing expenses and full emphasis should be given on reducing this cost. Talent and Resource Cost should be carefully analyzed and any decision to cut here should be taken after due prudence. The talent pool is essential for the running of the organization and will be an important asset to turnaround the company towards success and profitability. Strategic Cost must be protected at all costs. Taking any decision to cut this will be suicidal for the organization as it will have nothing left to innovate and succeed if they do not make any strategic initiatives.

So how do you achieve true cost reduction?
The answer to the question is doing it in a very aggressive and intelligent way. As Jim points out Today's marketplace is full of folks who want to help reduce capital and operating costs in a piecemeal fashion. Transportation costs, purchase costs, customs and duty costs, inventory carrying costs and distribution center costs are all very, very important expenses that in these difficult times need to be reduced, and you should do so aggressively and intelligently.
The answer to the riddle is an integrated, holistic approach that increases profitability and puts your company in a stronger competitive position.