Increasing Spending Helps Optimize Supply Chain

The title is contradictory, I know, for reducing cost is the basic requirement and purpose of SCM. However, in the following three areas, supply chain must add spending.

 

First: top talent. As always, failure to attract/retain top-notch talent is listed as one important supply chain risk (which takes the fifth in Top Ten Supply Chain Risks for 2013 and 2016 by AON Risk Solutions). It affects a company’s competition, capability to innovate/ meet customer needs, and reputation/ brand as well as the destiny. Industrialist Andrew Carnegie says “Take away my people, but leave my factories, and soon grass will grow on the factory floors. Take away my factories, but leave my people, and soon we will have a new and better factory.”

 

To retain talent, increasing cost is essential. High salary, year-end bonus, training, housing subsidies, culture environment and even shares are all effective ways. This is the reason why most graduates worldwide take large companies such as IBM, Apple, Google and Huawei as the first career choice, because they can find value and prospect in these companies. According to a 2012 survey by Universum, among career choice factors, compensation and development opportunities ranked the first, representing 29%.

 

However, 43% gains in labor productivity since 2002 have drastically reduced labor cost as a percentage of total costs, to offset the cost increasing of raw material and energy, based on report from US Department of Labor. Here, an evil cycle comes out, especially in manufacturing enterprises, like Foxconn. When the new employees are skilled with their work, they usually quit and go to other companies. At that moment, they have had experience to raise their basic wage, but not remain the same in previous platform. Finally, the ripple effect causes slow efficiency in production, time waste in recruiting and training new employees… Larger loss.

 

The end of year is coming; the flip side is that the job-hopping period is also coming. Have you prepared you supply chain to prevent brain drain?

 

Second: social responsibility. Whether for reputation or really out of a good heart, it is necessary for enterprises to make effort and increase spending in social responsibility and environmental protection. In today’s society, social media comes into play of magnifier; any behavior has a significant impact on brand and reputation, despite your good-quality products.

 

Taking Apple as an example, on the basis of various indexes from Gartner, Apple has ranked the first in the top 25 supply chain list for consecutive six years. But as we all know, there is a black side-lack of social responsibility, which contributes to the continual jumping and brawl happening in its foundry-Foxconn. (If you want to know how, see Advanced Supply Chain Requires More Social Responsibility).

 

Apple committed to improve treatment of employees years ago; but never takes action. In the aspects of occupational health, labor rights and environmental protection, Apple also doesn’t give commitment to suppliers. Magnified by social media, damage to Apple’s reputation enlarges, especially when Apple can not introduce innovative iPhone product after iPhone 4S, leading to steaming of $30 million capitalization.

 

“Today’s consumers place great importance on ethical, safe and sustainable business practices, so global companies must be aware of labor or environmental practices that their customers do not view favorably,” says Yves Belanger, director and industrial engineer.

 

Third: information gathering. Due to continuous globalization, SCM becomes more complex and business critical than ever before. Thailand Flood and Japanese Earthquake posted serious threat to global electronics supply chain. With fast data collection capacity, manufacturers could timely reroute work to other suppliers for disk; but without the correct, real-time data of when, where and how many suppliers were affected, companies had to stay passive until losing ground to rivals.

 

In addition to natural disasters, political and economic instability, supply disruption is key that should draw attention. To gather information, spending increasing is necessary; professionals are better if possible.

 

It is a principle to reduce cost for supply chain management; but long-term view of spending increasing is essential. What’s your thought? Is there any other fields requiring add cost? Let us know with a comment.