Is Cost Savings Enough?
In a recent editorial, Supply Chain Digest argues that business needs to redefine what it means when it talk about savings (“Thoughts on the Age Old Question of Measuring Procurement Savings”). We couldn’t agree more.
Too often, the concept is exclusively one of “cash releasing” savings. That is to say, price concessions. “If you are in an interview with me and you say, ‘I don’t want to do savings,’ then the interview is over,” Sky Group Procurement Director Fabio Francalancia told the Supply Chain Digest editors. That’s the old mentality.
While cash really is the gift that never stops giving, that narrow definition overlooks all the other ways that providers can bring value to their customers: Supplier innovation, process redesign, sustainability gains, increased throughput and customer satisfaction just to name a few. And, the story points out, beating up a supplier on price might result in that vendor bringing an innovation to a competitor first.
We have also seen time and again supply chain professional bargaining each individual supplier down to the last penny while ignoring the much larger savings opportunities available from transforming a whole business process. Consolidating loads. Shifting modes. Eliminating shipment legs. Even outsourcing inventory ownership altogether.
That’s much harder work, and it requires collaboration, partnership and trust across functions and among suppliers. It also depends on superior systems for visibility, analytics and execution. Maybe that’s why a penny less is so often deemed good enough.
We’re not arguing that cash-releasing cost reductions aren’t important. But, for us, they’re where discussions about savings begin, not end.
While You Were Shipping…
Stories you may have missed that recently caught our eye
Airfreight Markets Hit Some Turbulence. (The Loadstar) IATA has revised its 2019 air cargo growth prediction from 3.7 percent to just 2 percent. Turns out trade restrictions and tariffs between Asian countries and the US are creating a rough ride for air carriers.
Can’t We All Just Get Along (Journal of Commerce; tiered subscription access) Interoperability may be the scariest word in supply chain. In the past, we heard that as the main barrier to adoption for RFID, extended ERPs, you name it. Does it surprise you that JoC is citing it as the bugaboo preventing the Internet of Things from catching on in container shipping?