Deep Job Cuts- What are the Long-Term Implications?

The Financial Times featured a somewhat insightful article that should trigger some strategy thinking among corporate as well as supply chain organizations regarding which companies are better prepared to take advantage of a pending economic recovery.

The article, Deep job cuts give U.S. groups an edge, (free sign-up may be required) contrasts whether North American based companies, who were quite aggressive in cutting overall headcount numbers early in this global recession, may be better positioned financially and organizationally, than European or Asian Pacific companies, who have been less aggressive in cutting headcount.  As we have been noting in this blog, many cost and headcount cuts have impacted supply chain organizations.

The article quantifies reported absolute job cuts from mid-December 2008, to the end of May 2009. Those numbers clearly indicate that North American companies were almost twice as aggressive in cutting jobs:

North America- 640,000

Europe-               354,000

Asia Pacific-        244,000

The premise is that companies outside of North America, in particular the EU are now suffering the financial drag of reduced sales with higher labor costs as the recession drags on.  The open question is whether North American companies are better leveraged with leaner organization to seize opportunities when the recovery takes hold in various industry settings?

I’m going to weigh-in on this debate.  Obviously, U.S. companies have been effective at maintaining some basis of reduced profitability in spite of declining sales, by shedding jobs, in some cases, erring on the side of more vs. less.  But the question in my mind is at what longer-term trade-off?

Many economists and analysts point to the fact that full-recovery in the U.S. will not come until unemployment levels dramatically improve, along with consumer confidence. European consumers however, while also experiencing moderate levels of unemployment, have had more time to buffer financial vulnerability, by nature of continuing to have some job and income in the household.  The rate of house foreclosures or personal financial distress in Europe is far better than that in the U.S.

U.S. companies have shed many talented and skilled supply chain professionals, and when recovery does occur, those skills will have to be rebuilt.  We noted recently the results of one survey of currently employed supply chain professionals that indicates growing frustration with the pressures of today’s survival workplace, along with personal dissatisfaction directed at their employers. That does not bode well for companies having bandwidth for innovation and seizing industry momentum when recovery occurs.

We have also noted consensus opinion that recovery will be led by the emerging economies of China and India, where a growing and more confident consumer base is already spending. How prepared will Asia Pacific companies be to augment or rebuild critical supply chain skills?  Will the pool of candidates comes from idled U.S. professionals?

This is the other side of this debate.

What’s your view?   Have U.S. companies traded off the need to sustain profitability with the longer term ability to seize industry growth or market share when recovery begins?

Time for Supply Chain Matters readers to weigh-in.

Bob Ferrari

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1. Bruce Spurgeon says:

   October 21, 2009 at 10:11 am

   I notice that the article did not mention the % of change. I would guess that the % would say the cuts are even bigger.

   I see some companies at each end of the spectrum, but most seem to have cut deeply. Some that cut deeply have told me “the system will keep us from missing an upside”.

   Interestingly, I was brought in at least one case just to evaluate if the supply chain “system” was adequate. The short answer I gave them was “No”. They are now slowly working to make corrections.

   I think many of the companies will be disappointed by their “systems”. This is because few “systems” are bullet proof and the people who make the critical decisions (and changes) are overloaded. On the other side “systems” provide information to manage exceptions and there a lots of supply chain people available to fill gaps.
2. Bob Ferrari says:

   October 21, 2009 at 10:25 am

   Hi Bruce,

   Thanks for your insightful comments. I tend to agree with all that you mentioned. Time will surely tell the real story, as recovery takes a hold in each of the various industry sectors.

   We at Supply Chain Matters will continue to monitor evidence of too many cuts impacting overall response capability.

   Bob Ferrari