Cost reduction isn’t always the best response to times of crisis

Sustainability became an extremely relevant topic in the corporate world a few years ago.

But when we talk about B2B and the relationship between buyers and suppliers, that term isn’t limited to environmental issues only, but also to longevity. In other words, the type of partnership established between the parties and how healthy it can be kept over time.

In a scenario like the one we are experiencing today, of risks, crisis and economic instability, preserving the relationship is extremely important, in order to face such a delicate moment and avoid impairing any side of the chain. Thinking about it before cutting costs (for instance), is crucial for the post-pandemic period.

Cost reduction undermines business relationships

It’s usual that the first thing we think about, in the face of a crisis, is protecting financial health; but reducing expenses at any cost may not be the best way to minimize risk – we must think in the post-crisis period too.

For instance, is really necessary to end the contract and threaten the survival of a good supplier of your company? Or would be better to attempt a fair negotiation for both parties, which could strengthen your relationship even more? If the answer is yes, the relationship will be certainly strengthened after the turbulence is gone.

Those who are creative and able to build a collaboration network between companies and suppliers will have better results. The corporate world functions like a beehive. Every business decision made by an entrepreneur will affect other companies – whether they are customers or suppliers.

Businesses must act together – and not think in the short term only – to dialogue with other organizations that are part of the same chain, and try to find ways to preserve partnership and trust between strategic allies.

You must respond to the crisis, but don’t forget it will eventually end

We are going through an unprecedented crisis, to which there are no prompt answers. However, after five months of experience in this scenario, we realized that those companies that managed to reinvent themselves, reconfigure their processes and carefully review their resources – to understand if the best strategy has really to do with lower costs – are getting stronger.

And this process involves also the ability to decide in the right way, not just cutting costs at random. You must know where to cut, in a judicious way, in order to avoid impairing the company’s health and future.

The change of suppliers considering only the factor of paying less, without any other criteria, for instance, can impair the quality of deliveries and decrease customer satisfaction.

In general terms, you must respond to the crisis, but don’t forget it will eventually end – yes, it will!

In many cases, the most assertive decisions take into account the importance of keeping your partners and continuing to work with quality and customized materials and services for your business. In this way, your company will be prepared to resume normal production when the economy resumes its normal activities.

This article has been written in collaboration with Marcelo Pereira* and Priscila Miguel**.

*Marcelo Pereira – Mercado Eletrônico’s Supplier Management Expert

**Priscila Miguel – coordinator of FGV-CELOG (Excellence Center in Logistics and Supply Chain of FGV EAESP)

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