Cost Cutting – Where Does It Lead?

After the horrible fire in Bangladesh in November that killed 112 people, it came out that some major retailers were using the factory  to source clothing.

Obviously, this is a really tragic event and a lot has to be done to improve working conditions and safety in factories like this.

But I can’t help thinking that some of the blame for this type of thing falls back to not only American companies – but also American consumers.

Let’s face it…We want to buy things cheaply. That’s why Walmart is so popular and that’s why so many of us shop there.

But Walmart itself is under constant pressure and faces competition from other retailers to continually lower prices to entice consumers.

And this keeps driving them (and companies like them – I’m not just singling out Walmart here) to keep cutting prices.

Cutting prices, while great for consumers, has an effect. It ripples through the supply chain of a big company.

And eventually…corners get cut.

Somewhere along the line the constant pressure to get things cheaper causes manufacturers, suppliers and retailers to cut costs in a variety of ways.

Maybe they find more efficiences in their supply chain.

Maybe they cut the quality of their products.

Maybe they cut the selection they offer.

Maybe they cut manufacturing costs with technology or other innovations.

Maybe they use the cheapest factories they can find that still produce the same goods.

Maybe certain safety standards get relaxed or overlooked.

These cuts do not always have tragic consequences. I am not saying there is an immediate link between cost cutting and safety.

Some of this pressure is good. It causes companies to innovate and lets other companies compete if they can do things better, faster and cheaper.

But how much are we willing to sacrifice for cheap goods?

Are there other ways to cut costs and lower prices for consumers?

This is a bit of a riddle because I don’t think the downward pressure on prices is going away any time soon. We all want the most for our buck.

I don’t know the answer, but I’m curious to hear your thoughts.

Drop me a line at ryan@dva.com.