Can You Actually Save Your Way to Instability?

image: money flyingWhen Woolworths recently posed mandates to its supply chain, many experts began asking some basic business sustainability questions.  Examined further in the International Business Times post, Wollies Demands 5-10% Cost Savings from Suppliers Under Threat of Shelf Removal, the article presents what may seem like a counterintuitive concept of over-saving.  Describing how leveraged buyers often press suppliers to a point of instability, our sustainability consulting argues that these actions are not necessarily in the best interest of long-term business sustainability.  

“When mapping out a cost cutting scheme, it is important to understand your supplier’s perspective. You can save about $100–200 million annually by collaborating with vendors on savings innovations. By becoming a customer of choice, leading procurement organizations are able to extract maximum price reductions through positive supplier relationships.”  -Procurement Strategy Council

Expanding upon the concept behind this quote, our sustainability consulting practice has its own opinion on simple cost cutting.  We refer back to the post, Is Your Category Management Delivering.  This article explores the value aspects of implementing affective category management strategies.  The resulting guidance addresses four key areas of focus:

  • Identify and quantify the level of value delivered from category management. 
  • Understand the specific approaches and practices used to design, educate and implement category management. 
  • Identify the resource requirements to deliver significant category management value.
  • Assess the similarities and differences in category management approaches and benefits across sectors. 

Our sustainability consulting experiences reveal that business sustainability action, enabled by strategic sourcing and procurement guidelines to align suppliers with defined business sustainability strategies, has become a much more common business practice.  Moving forward, we subscribe to the idea that the next generation of sustainable supply chain management will continue to evolve with the alignment of business sustainability interests.  Focused on new levels of responsibility across all supply chain activities, efforts in the coming years will drive deeper into category value by utilizing stakeholder engagement strategies and social technologies.

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