Mitigating Risk versus Reducing Costs in the Supply Chain

Reducing the cost of goods and services is an important goal for every business, especially in a competitive environment in a depressed market. Entrepreneurs should strive to improve gross margins by reducing their costs, but is this always the right focus?

Mitigating the risks associated with your critical supply chain, whether for procuring raw materials or goods or employing people who provide services, is more important in the long term than just reducing costs.

While one might be successful at lowering costs through tight controls, wage freezes, and aggressive negotiations, if the risks inherent in procuring such goods and services are not mitigated, there is no assurance that you would continue to receive such, regardless of cost. Short-term cost reductions might be replaced by higher replacement costs if the original supplier of the goods or services is incapable of delivering them or choses not to.

Entrepreneurs need to work with their supplier of goods and services (including employees) to find ways in reducing  risks for continued and reliable delivery of quality products and services for the long term. Foregoing short-term cost saving by gaining longer-term reliability of your supply chain is more critical for your success.

Ravi Patel

 

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Published in: on August 30, 2010 at 5:40 am  Leave a Comment  
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