Managing costs critical to achieving sustainability

0
757

Sales are driven by effective systems that propel competitiveness and with the capacity to produce desirable products and services that can easily penetrate new markets.

Profitability is, thereby, determined by deduction of costs from the sales, thereby, anchoring procurement to be the undisputable driver of competitiveness and sustainability.

Supply chain costs, thereby, require serious consideration if the business is going to survive.

Supply chain costs initially relate to the costs of input, which is the opportunity cost that relates to the value paid for any goods or services.

In this regard, it is important to understand that cost is different from price in the sense that price is the amount of consideration to be paid or given for an article at a specific location and in the given state.

Cost, on the other hand, is the total sum involved that includes the price in addition to all other associated sums associated with ownership.

In that regard, price is never a synonym of cost. Sustainable businesses are the ones with an appetite to control costs.

In addition to managing input costs, sustainability demands reduction of waste. Waste, in supply chain terms, refers to a wide spectrum of issues that include holding inventory that is not immediately required.

It extends further to review of production processes on the ability to reduce waste from operational activities such as inefficient production methods.

Efficiency then ends with safe disposal of waste or items after their productive life. Supply chain activities play a pivotal role in this cluster of activities.

Sustainability also requires that production requirements are available when they are required.

This does not imply hording to avoid shortages, as it is a practice against sustainable businesses.

Although stores were built to manage supply unpredictability, their main aim is to smoothen demand and supply challenges.

Modern supply chain strategies encourage systems that allow for indirect borrowing through the process of managing contracts.

It is now encouraged to enter into long-term relationships with strategic suppliers of the business so that benefits of mutual relationships are attainable. This then reduces the level of investment in stores.

invoice-management

Having materials required available in the optimal quantities at the right time, requires a paradigm shift from the way most procurement and stores units are structured.

Most supply chain systems align stores function under the remits of management accounting and the procurement function is subordinated to finance manager.

There is inevitable competition where the efficiency stores function is measured by the ability to have a high service level and procurement is measured by the turnaround rate of purchase requisitions to purchase orders.

Holding high volumes of stock not for immediate use becomes inevitable.

Sustainability is, therefore, eroded. The competing targets of stores and purchasing require synchronisation to achieve sustainability.

It is only when the stores and procurement systems are properly aligned does the capacity to engage in long-term contracts become feasible.

It is only when the procurement takes the lead in planning inventory availability can the benefit of sustainable supply chain be achieved.

Although there are other elements of sustainability in supply chain that include the extent of energy efficiency that is in the remits of the production function, the supply chain issues dominate its success.

Companies that adopt sustainable supply chain strategies have a history of meeting business commitments. It is, therefore, a simple business practice with big results.

 Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: nya.chizu@gmail.com Skype: nyasha.chizu