Are costs and service mutually exclusive?
Following on the most recent post and elaborated on in the latest Manufacturing Insights newsletter by IDC, there’s a good discussion there by Simon Ellis asking whether or not costs are mutually exclusive with service in the supply chain?
I think the biggest mistake companies make in this area is “assuming” they are trying to achieve both - yet set objectives that focus and emphasize just one. What I mean is that if you don’t set objectives and incentives around service and cost, you won’t work to thrive at both. I’m a big believer in the “genius of the and” as described in the book Built to Last by James Collins (at amazon.com). The basic premise is that visionary, successful companies set goals and incentivize people to achieve both (and).
By focusing explicitly on both service and cost, then aligning objectives and incentives accordingly, best in class companies can achieve both. Doing so requires empowerment of people with the information and tools to rapidly respond to change and ensure that their actions are continuously aligned with these objectives.
August 9th, 2007 at 7:03 am
I understand the power of AND, however there’s another three letter word called BUT. If accountability for service and cost is split between functions responsible for logistics and purchasing, then there is always the risk of conflicting functional scorecards undermining the overall objective. Although best-in-class companies have recognised this, there are still many examples of companies that haven’t woken up to the new paradigm. Also important is the degree of collaboration with LSP’s - an enlightened approach to sharing information and objectives with service partners is key to achieving both service and cost improvements. A confrontational, adversarial relationship with suppliers may achieve short-term cost benefits, but is rarely sustainable, and will often have negative service implications. Regards Paul Gooch, Managing Director, The Logical Group
August 9th, 2007 at 1:08 pm
Hi Paul - good comments. I especially agree with your point about relationships with suppliers. In today’s outsourced environments, relationships have to be viewed for the long-term and what objectives you desire. I think too many companies originally entered into relationships with cost being the sole or primary driver. I sense that is changing as companies realize that service and other factors are critical to success and have to be factored into the relationship dynamics and processes.