If Cash is King today, then Cost Reductions are Queen and Jack
March 24th, 2009 by Steve GansterAround the world, buyers are looking to cut cost at every point in the supply-chain. I was interviewed recently by Jim Tompkins about my perspective of the economic situation in China and tactics companies can implement today that will improve their supply-chain efficiency and value.
No question the economy is down in China, but unlike the Unites States, the China economy is above break even. In 2008 China’s economy grew 9%, a whopping number to Americans, however, it is the lowest growth rate to the Chinese in the last 8 years.
As the world economies contract, the whipsaw effect is stinging China, especially in South China. This export mecca of Asia has many companies shutting down, consolidating, and fighting to stay alive.
We all know it is difficult to undertake new programs during an uncertain economic downturn, but for those with the wherewithal and the will, there is opportunity in chaos.
Taking a new look at your sourcing can have the following benefits:
- Immediate cost reduction
- Improved sourcing performance in quality, consistency and speed
- A more robust but leaner organization to ensure longer term stability
- And stronger and more effective supplier relationships
Let’s keep the COST acronym as a road map to taking action. The landscape for sourcing product is changing dramatically. Here are a few mile markers.
C – Now is the time to assess changes in Countries in Asia for sourcing. There was a brief moment in recent memory when oil costs were at all time high other Asia counties may have looked attractive, now the pendulum has swung back, so considering the right countries to prepare for demand when it returns is critical to reducing costs.
O – The Organization with the right skills in place will be better positioned to control costs. We have seen general discontent with 3PL performance that is leading management teams to explore doing more themselves in China, such as putting in their own warehouse or consolidation center.
S – Just as you need the right mix of organizational Skills, the same is true for suppliers. The opportunity in the chaos is reassessing your suppliers and whether their suppliers are handling the economic downturn. How will downstream suppliers align is a question that should be answered now, and not in the middle of the future accelerated demand that may seem distant today.
T – There is no time like the present to review Terms of traditional vendor relationships and consider other strategic sourcing arrangements. The time to reduce costs is at hand. It is an opportunity that may lead to both short term cash and long-term relationships that are mutually beneficial.
Listen to more of this discussion with Jim Tompkins CEO of Tompkins Associates and me in this podcast called Asian Sourcing Cost Reduction
