Overhead Cost Cuts Don’t Provide Long Term Savings

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I was very pleased to see this recent article in Purchasing that noted that cost reduction efforts require more focus than sacrifice because all too often I see companies blindly focussing on fixed cost reduction, which, in fact, just costs them more in the long run.

You see, when you cut travel, you cut the ability for your people to make, and maintain, relationships. When you cut entertainment, which is typically a very small budget to begin with, you increase stress, which decreases productivity. When you streamline operations, things start to slip through the cracks. Then when you cut workforce, you cut capability, key processes get skipped entirely, critical sourcing events just don’t happen, and you keep sourcing off of expensive ever-green contracts and spot-buying at high prices. When you cut training, your staff’s skills get even more outdated and your cost reduction efforts miss the mark. And when you cut compensation, your best employees feel unappreciated and trampled on, stop giving 100%, and start looking for their next job.

As the article says, you have much better opportunities, including:

  • transaction processing
  • supplier management
  • health care benefits
  • IT assets (hardware and software)
  • logistics