Companies Must Focus on More than Cost to Maximize Flexibility

Organizations in the U.S. and around the world have increasingly realized that focusing just on the lowest cost when building a supply chain can actually cost more in the end. And according to a recent article by www.bdlive.co.za, a single disruption in a company’s supply chain, whether from a financial or natural disaster, can cause a company to fall apart and even go out of business.

The article quoted Rod Stout, director at Business Modelling Associates, as saying, “A supply chain with a cost focus is often a rigid supply chain. Therefore, while cost remains a critical factor, many multinationals are building in the ability to be flexible, as the cost of not being agile is far higher than any savings that can be generated by cutting costs.”

Stout pointed out that companies have learned hard lessons after events like tough trading environments of the past few years, geopolitical change, and natural disasters like the earthquake in Japan. In these types of situations, supply chains created without flexibility cannot handle the crisis in front of them.

“The increased cost of trying to respond after the event is considerably more than the cost of building in that flexibility in the first place,” Stout was quoted as saying in the article.

He also pointed out that departments within a company, including procurement, supply chain management, and sales and marketing, must work in coordination with each other to successfully deal with a disaster. If supply chain management is not completely in tune with the demand side and the supply side of a company, rapid planning and response will not be as efficient as they need to be in a demanding situation, like an earthquake, storm, or other disaster scenario.

According to Kate Stubbs, a marketing executive at Barloworld Logistics, companies will die quickly if they do not adapt. “Businesses that cannot adapt overnight to changing market conditions will fail,” she said as quoted by BusinessDay.


For more information about how companies must make their supply chains flexible to adequately respond to crises, visit: http://www.bdlive.co.za/business/management/2013/03/27/focus-on-cost-can-destroy-company-flexibility