Monday, 18 February 2013

When Cost-Cutting Goes Too Far

Authored by Fayaz Haq

Can you ever cut too many costs?

At first thought, your answer is probably an emphatic ‘no way.’ However, aren't Procurement executives are in the business of saving money? But if you think about it a bit longer, you realise that there’s far more to procurement than just cost reduction. Too much cost reduction can actually hinder quality and put a company’s reputation at risk.

Or even worse...Consider this extreme example of budget-airline Ryanair. Their own pilots recently voiced concern that the airline’s fuel-saving measures could put passenger safety at risk. The pilots claim that they were forced to fly Boeing 737-800 planes on as little fuel as was legally allowed to help the airline reduce costs.

According to Procurement Leaders, one pilot was quoted as saying “I hope it doesn’t take a crash from one of our planes to wake up everybody.” The airline, of course, denied the allegations. While this is an extreme example, it goes to show that cost is only one factor. Maybe it’s safer to say that procurement is actually in the business of adding value — not cutting costs.

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