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Cost reduction strategies in supply chain
Supply Chain leaders are currently navigating rough waters. They’ve always needed to combat material shortages and demand fluctuations, but ongoing market uncertainties are weighing on today’s global economy. Demand is tightening and costs are climbing higher across the entire Supply Chain.
“With signs pointing to slowdown of the global economy…the role of supply chain is evolving to become more strategic than before, with a keen focus on cost reduction, resiliency, and efficiency,” observes EY. In practice, that means measures to protect margins in the short term — by finding opportunities to quickly cut costs and meet changing markets and customer demands. But also a long-term strategy to save money year after year.
What is strategic cost reduction and why does it matter?
Strategic cost reduction describes the process of eliminating excess costs across your supply chain and its direct impact on your business.
But here’s the tricky part: supply chains are inherently complex, spanning many departments and processes. Your biggest levers for cost reduction can hide in a number of areas – Inventory Management, Suppliers, Sourcing, Contract Usage, Transportation, just to name a few.
And while there are a ton of advice blogs out there that tell you what you can do to reduce costs in a specific area, none can point out where YOU can make the biggest impact in relation to your unique business goals, challenges, and industry. You don’t need a cookie cutter approach, but a way to find cost-reduction measures that match your supply chain.
So, let’s turn this around and look at cost-cutting strategies that start with creating visibility into your supply chain. And how that impacts the next steps you can take.
Five cost reduction strategies for your supply chain
1. Embrace technology.
To put it bluntly, you can't solve today’s challenges with yesterday’s tools. Planning software can't tell you what's happening in your supply chain in real time. And fragmented data and systems leave your teams with limited insights into your upstream and downstream operations.
However, you have the digital revolution at your fingertips — thanks to technologies like AI, machine learning, intelligent automation, digital twins, and process mining — and now is the perfect time to start taking advantage. Companies that embrace these technologies can increase visibility, agility, and predictability across their supply chain, driving cost-savings in the long run.
Look for solutions that offer both transparency and action, and that connect to the systems and processes you already use.
Search for capabilities like:
Real-time transparency into existing contracts to minimize contract leakage and reduce spot purchasing.
Automatic detection of payment term mismatches to prevent early payments and optimize working capital.
Intelligent automation to reduce unnecessary touchpoints and reduce throughput time.
Bringing the right technology into your business will make all the difference in identifying which cost-reduction measures will work for your supply chain.
2. Understand your biggest money drainers.
Now that you have the right technology in place, the next challenge is figuring out how to use it wisely.
Are you using all the discounts? Do you buy too much safety stock? Are you always working with the best suppliers? These are all potential cost-saving opportunities. But are they the right opportunities for you? That’s hard to tell when you don’t have end-to-end visibility of your supply chain.
With a real-time 360° view of your supply chain you can identify the biggest cost drivers, analyze the root causes of high costs, and prioritize your cost-saving initiatives based on their potential impact and effort. This means finding levers to achieve quick wins and drive long-term outcomes. You’d be surprised by the impact you can achieve in a short time once you know where to start.
3. Adopt a process-centric view.
Supply chains are one mega-process made up of lots of connected micro-processes, all happening in different systems, handled by different people, in different departments. And they all impact each other. That means drip-down effects whenever something goes wrong.
If you only focus on isolated KPIs, you’ll never be able to catch these chain reactions that cost you money. Instead, you need to look at the very thing supply chains are made of: processes.
Optimizing your individual processes will have a huge impact on your performance – and your costs.
For example: if you’re solving order blocks faster, you can utilize more discounts. With better insights into your inventory, you can adapt stock levels in line with actual demand to prevent excess purchases. By improving supplier reliability, you’re less likely to spend money on express shipping for alternative material sources.
By thinking process-first, you break down information silos and establish a single source of truth for all your teams. Which brings us to the next strategy…
4. Break the blame chain.
Without end-to-end transparency, problems like delays, missed discounts, or stock mismatches can cause a lot of finger pointing between your teams and departments. It's not anyone's fault in particular. It's just that your teams — and the systems they use — speak totally different languages.
Once you give your teams a single source of truth and prioritize action, they can start speaking the same language and work together to drive cost savings. Simply because they understand the interdependencies and knock-on effects across your processes.
Related reading: How Siemens has saved $15 million annually through process automation in O2C
5. Deploy intelligent automation.
Automation is still a scary word for many people who fear they might be replaced. But let’s be honest – there are more interesting, people-dependent tasks out there than copying data from one file to another. Or unblocking orders that don’t actually need approval from a real set of eyes. That’s where automation can be a real gamechanger.
It all comes down to visibility again. Imagine a world where intelligent automation notifies your team about critical order blocks AND resolves the ones that don’t need human intervention. Where a bot automatically informs you when inventory is getting stuck to prevent inventory buildup. Where your teams can focus on more valuable and important tasks, instead of losing time on repetitive work.
That’s the world you can build where you bring people, process intelligence, and automation together. For cost reduction efforts that match your supply chain instead of cookie cutter approaches that only leave you with a fraction of the true potential.
Get your supply chain working as one
The pressure on supply chains is not going away anytime soon. If you want to prevail, you need a strategy that yields results constantly and can adapt to changes.
When you bring insights, people, and technology together, you can create a strategy that matches your company’s unique challenges and potential. You can find the right levers for immediate cost-reduction and long-term efforts.
Look into solutions that offer you both the transparency and actions you need to start cutting costs today. Understand how technologies like process mining, automation, and AI can become crucial parts of your strategy forward.And think about your supply chain as a whole – not in silos – to achieve real, tangible results.
Check out our solution page to learn more about process driven supply chain transformation.
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