Daily Archives: January 24, 2013

Are You Going to Be Able to Control Costs this Year?

Costs are rising across categories and verticals and will likely continue to do so. There are a number of direct and indirect reasons for these increased costs, but the most substantial are the following reasons which could collectively rip a supply chain out from under even the largest of multi-national corporations.

1) Inflation is back with a vengeance

Commodity costs are rising across the board. According to the Royal Bank of Canada, the commodity price index increased for the third straight month and hit a five-month high in September. They increased 8.2% since June! Barley and Corn have exceeded the highs of 2008. The price of Live Cattle is almost 50% more than it was just two years ago. Copper is climbing back to its recent high. And these are just a few examples.

2) Market growth is stagnant and, as a result, so is job growth.

Stagnant growth in their markets can limit a company’s ability to increase the breadth of its strategic sourcing activities and get more spend under management, a critical key to cost control. While stagnant markets should be the bugle call for a company to get more spend under management, the lack of resources, primarily due to lack of hiring of new talent and investment in new technology, has kept many companies from expanding the growth of their sourcing efforts. In addition, stagnant market growth means that volume is not going to increase, and this limits a Supply Manager’s ability to negotiate (additional) volume-based savings going forward.

3) There is a widening gap between risk identification and mitigation.

The amount of research on risk and risk mitigation has reached an all time high, but there has been little or no movement towards the identification and implementation of an effective risk identification and mitigation strategy. In 2008, a Marsh survey found that only 35% of organizations self-reported that supply chain risk management was moderately effective at their companies. Stated another way, 65% of companies did not have a risk management program that was at least moderately effective. In 2011, researchers at Vlerick Leuven Gent Management School and Ghent University did a supply chain risk management study and again found that 64% of
the companies have no one responsible for managing supply chain risks! That’s essentially zero improvement in the last
three years!

And these are just three of the reasons (or fates) costs are rising across categories and verticals! For the other four reasons, the seven elements missing from an average Supply Managemnt organization exposing it to these seven fates, and the ten competencies that every Supply Management organization needs to master in order to acquire the seven elements that will allow a Supply Management organization to fend off the seven fates, remember to download the Top Ten Things to Do in 2013 to Control Costs, a free white-paper from BravoSolution (registration required) authored by Sourcing Innovation.