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Is your supply chain cost cutting project hurting your customers?
Supply chain teams generally take care to ensure that any cost cutting attempted by them doesn’t hurt the customers. However, I have heard of several projects, which hurt the customers in an indirect manner, still passing the muster. Let me give an example.
There was a wave a few years back when certain leading FMCG companies decided to do away with distributor inventory in metro towns. Distributors were to take orders from retailers and pass it on to the company, who would dispatch exact quantities to the distributor for servicing the retailers. The idea was to save working capital cost for the distributor and settle for a lower margin. Did it work?
While distributors saved on their working capital and companies saved on margins, retailers suffered. They got their order after two days compared to the next day delivery by other companies. As a result, they often diverted their orders to either the wholesale, other aggregators or competing brands who offered faster delivery. Resulting lower secondary sales by the company were often attributed to market slowdown, competitive pressures, omnichannel purchases by consumers…
Systems thinking helps in connecting the dots!