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‘Death by thousand cuts’ – Are cost reduction efforts weakening the Supply Chain?
Most Supply Chain teams have a list of cost reduction initiatives they are currently working on. They don’t know that many of these initiatives are actually dangerous to the stability, performance and longevity of the business.
Profit improvement is a good goal to have. The question is… are we diminishing our ability to respond to market uncertainties? Are we cutting down the protective capacity of various resources? While these protective capacities are seen as unproductive in cost terms, their real use is to protect the business against uncertainties.
Uncertainties are a fundamental reality of the business landscape. We can’t wish them away. If we don’t have protective capacities in place, these uncertainties could create havoc in the supply chain and result in huge stockouts.
Let me give you an example. Imagine if the city roads were designed for 100% capacity utilisation, with zero protective capacity. What would happen to the flow of traffic? It is absolutely necessary to have a certain protective capacity in place for the traffic to flow smoothly, even during peak hours.
Let’s ensure that the cost reduction efforts don’t cut down these protective capacities.