The years after COVID have introduced a host of challenging economic conditions, including rising costs, material shortages, supply chain uncertainty, poor governance, and other issues that add to business risk.
One ubiquitous approach companies have taken is to look long and hard at costs in order to get more efficient. This takes many forms, of course, including trimming payroll, improving processes and thus productivity, substituting in lower cost materials, and sometimes even tougher decisions that require painful trade-offs.
Cost-cutting often makes good sense — in any economic environment — but at the same time it can be a double-edged sword, especially if it leads to a reduction in investment under the guise of cost cutting, changes in the quality of the product or service a company provides, and limiting capabilities of the company to react to changing conditions.
At Hero Arts, we have had a number of quality issues with raw material suppliers over the past two years that were the result of cost cutting. Once investigated, it turned out the issues originated from “cost cutting” programs. The issues I have experienced include:
- An unannounced thinning of our regular rubber, which has increased reject rates by over 20%.
- A change of label printing resin that has allowed the image to easily scratch off, leading to customer returns.
- Wood that is delivered with less drying time, leading to increased warping, and thus more difficulty with machining.
Ironically, all three of these have lead to reduced business and an increase of costs due to returns and reworks for the suppliers who had the issues.
The critical issue related to these changes was not communicating with the customer, in this case us. Without communication, the impacts were felt up the supply chain and problems were discovered only after the materials had already been integrated. Thus, not only did quality suffer, but also supplier relationships took a hit, which could have lead to more unstable business in the long run as a result.
At Hero Arts, as a result of these issues, I have worked very hard to improve communication with and among my suppliers, and have made sure any changes to a product I use in my process is discussed, planned, and tested in advance. In the end, I have better suppliers for it, and better relationships, as the issue of quality vs. efficiency has come into better focus. In this way, cost cutting is not an isolated consideration of a single company, but instead an important strategic topic for an entire supply chain.
The current economic cycle has been rocky in more ways then I could have predicted, but I hope my company, and my suppliers, will be better for it as a result of new communication tools, a better understanding of the impact of material changes, and the need to work together on product development and material selection.
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