Focusing on cost can be so costly

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Related tags: Supply chain management

Focusing on cost can be so costly
I guess at least a few people share my prejudice that the US breeds supply chain people who are highly skilled at talking and 'theorising', but not...

I guess at least a few people share my prejudice that the US breeds supply chain people who are highly skilled at talking and 'theorising', but not always so adept at delivering. On the whole, our sector in the UK is the antithesis of this. We deliver - but are not great theorists.

We should, however, not discount theories from across the Atlantic just because they start there. The latest from Steven Melnyk (professor of operations and supply chain management at Michigan State University) focuses on changing from a cost-centered approach to one that puts more value on process development, closer supplier relationships, talent retention and innovation.

That's all very well, you may argue, but he does not have my chief executive or finance director breathing down his neck every month!

But do you remember the days before lean manufacturing? The old ways of time study, productivity, trades unions and buying at the lowest possible price were shown to be counter-productive. Ultimately, they squashed talent, saw relationships swapped for a few pence and created appalling labour relations - and Unilever, Procter & Gamble, Masterfoods, Heinz, Kimberly-Clark, to name but a few, survived them.

Focusing on process development, supplier integration, talent retention and innovation has a virtuous impact on profitability. It is much more satisfying to work with, rather than against, your vendors and employees. You cannot innovate if you spend all your time fighting fires caused by cost cutting and vendor changes. I hope, therefore, I will be brave enough, the next time I look at a company's costs of warehousing and transport and the quality of customer service it provides, to make the right recommendations. Attritional relationships carry a high cost. You can show costs on your profit-and-loss (P&L) account - but, sadly, P&L never gives quite the same weight to service excellence!

Tim Knowles​ is partner at supply chain consultancy TKA.

Related topics: Supply Chain, IT, Services

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