‘Don’t let cost-cutting erode value’

Cost management
continues to rank as a
high priority for supply
chain professionals
with only 52% of those surveyed
in the Barloworld Logistics
supplychainforesight 2016
report stating that their cost
management strategy had been
“highly effective”.
A total of 39% said their
strategy had been “partially
effective”, while 6% said it had
been ineffective. The remainder
(3%) said cost management was
not an applicable strategy.
“The important question
around this is to what extent
their cost management strategy
increased or sustained existing
profit levels; opened new markets
or increased market share – as
that should be the justifying
factor in cost control,” said
Barloworld Logistics executive:
marketing, Kate Stubbs.
She added that simply
cutting costs could, for
example, provide gains in
the short-term but could
eventually lead to companies
losing their competitive edge
in the market.
“Cost-cutting
exercises have
in the past
been a management
tool applied during
difficult times but often
without due regard to
the value being lost,”
commented Stubbs.
She pointed out
that, due to rising
operational costs
often being out of a
company’s control
– interest rates,
fuel costs, taxes and exchange
rates – the ability to adapt and
best manage the changing set
of circumstances could
contribute to a company
retaining its competitive
edge.
“Knowing where value
is being eroded or where
values are at
unacceptable
levels is vital to
managing costs,”
she said.
According to
her, the standard
accounting practices
and financial reports
do not currently
allow companies to
determine where the
true sources of profit
or profit erosion are
taking place within
their organisation.
“Information and data
collection is more prolific than
it’s ever been and if combined
with tangible and actionable
intelligence, driven by data
analysis, it could provide a
clearer picture of where costs
create or destroy value,”
highlighted Stubbs.
She also pointed out that
skills development and training
were often the “victims” of costcutting
or cost management
strategies. “But this is often
where many companies that
provide a strong customer service
experience gain their competitive
edge.
“It is disheartening to see the
skills shortages ranked as the
most ineffectively addressed
factor by respondents –
especially given the more than a
decade-long skills shortage in the
industry,” said Stubbs.