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Efficiency Versus Effectiveness

By APICS CEO Abe Eshkenazi CSCP, CPA, CAE | 0 | 0 | August 02, 2013

Some good news is hidden behind a misleading Reuters headline from July 26: “Analysis: US Chief Executives Can’t Break Cost-Cutting Habit.” Lewis Krauskopf, Patricia Kranz, and Lucia Mutikani write, “More than three years into the recovery, CEOs are still relying on cost cuts to prop up earnings.” The reporters suggest the cuts might not permit businesses to successfully meet demand once it really increases.

Now here’s the good news: Many companies, such as Coca-Cola and 3M are planning for increasing demand based on US spending and some European indicators. Thomson Reuters data show expected revenue growth over the next six months to increase 2.2 percent, increasing to 3.9 percent in the first part of 2014.

Furthermore, the cost cutting Reuters highlights is not through job loss. “In fact, US employment gains in the first half of 2013 held steady at about 200,000 a month. Even though growth has slowed in recent moths, some economists say many businesses have no choice but to beef up staff, after aggressively wielding the axe during the 2007–2009 recession.”

In yet another indication that the headline might be ambiguous, the authors write, “Many of the industrial cuts reflect a consistently sharper focus on efficiency among large companies, analysts said, rather than a reaction to a setback.” This belies the thought that the cuts are in an effort to offset revenue declines.

The supply chain and operations management balancing act

Consider the following definition from the APICS Operations Management Body of Knowledge Framework: “Execution of operations strategy is critical to the execution of the business goals. The business plan typically is focused on financial objectives, market and product objectives, technology, and growth. Operations must align these goals with processes such as speed, flexibility, cost and quality.”

The Reuters article suggests that, if demand picks up, businesses might be too lean to fulfill orders__indicating a disconnect between the overall business strategy and supply chain tactics. Good supply chain professionals know how to bridge this disconnect. Armed with the APICS Certified Supply Chain Professional (CSCP) credential, specialists can immediately establish their mastery of supply chain management best practices. Plus, the CSCP designation distinguishes those who have earned it as industry experts with specialized, high-level knowledge and skills.

As businesses in the United States and around the world prepare for what the economy brings next, APICS and its certifications enable businesspeople to quickly overcome challenges and use efficiencies to positively influence bottom lines.

Questions for discussion

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2 Comments

  1. 1 Bernardo Allayban 10 Aug

    I want to share my idea about the word "too lean cannot fulfill orders when demand picks-up". That is a risk but I think we can conquer that risk through proper planning and better demand forecasting 

  2. 2 Harlan Cohen 08 Aug

    I see "Efficiency vs. Effectiveness" as something of a red herring, as we (APICS) defines productivity as efficiency times effectiveness. Elevating the discussion to the realm of productivity makes the two components visible and of equal concern to operations. I am disappointed this did not occur in the discussion before this point in time. It is increasing productivities that "positively influence bottom lines". The efficiencies that damage effectiveness are not worthy of note.

     

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