An uncertain economic climate has resulted in businesses focusing heavily on reducing costs, often at the detriment of risk management. Is now the time to begin inversing the trend?
Companies which make the shift away from short term cost reduction tactics can secure important supply inputs before suppliers begin to see the change in market dynamics. Those who fail to act pre-emptively risk exposure to sharp price increases and scarce supplies, as suppliers begin to re-coup perceived losses during the cost cutting phase.
A vital element for companies, especially during the current climate, is stability. Investing in strategic supply chain development capabilities allows businesses to implement long term risk mitigation strategies and ensure protection from volatile market prices.
Sowing the Seeds
A prime example of businesses guarding against risk can be found in the oil and gas sector. Although relatively protected from global economic trends, these companies are at the mercy of oil prices and therefore used to cyclical phases of strategy implementation. Historically, companies such as BP and Shell will cut costs when oil prices are low and invest in risk mitigation plans when oil prices increase.
Investing in supply chain capability is not unique to the oil and gas industry. The practice of prioritising and segmenting categories, prioritising ‘programmes’ over ‘projects’, undertaking value chain mapping and applying longer term development sourcing techniques is common throughout most sectors. The difference is that oil and gas companies have invested in the capability of their procurement functions to allow them to work with their operations teams to improve long-term forecasting. This provides more attractive, long-term and predictable demand to their supply chain partners in return for price stability, innovation and continuous performance improvement.
Planning for the Future
Whilst short term cost savings are often a necessity, companies which invest in the future will often be rewarded with a significant competitive advantage. Investing ahead of everyone will help companies’ weather periods of economic downturn and minimise the impact of volatile market trends.