Establishing Strategies for Supply Chain Cost Reduction
Saturday, October 31st, 2009Making smart decisions about supply chain cost reductions can mean the difference between an effective strategy that garners results over the long term, and one where short term gains are outweighed by long term problems. How will your organization know if it’s making the right decisions and implementing the best strategies for long term success?
Organizations striving to achieve cost reductions can realize positive results by thoroughly and continuously analyzing the strengths and weaknesses of their supplier mix, identifying areas of consolidation, and determining its impact on capital and operating costs. Organizational focus on supply chain cost reduction needs to be a series of ongoing initiatives, as opposed to one time ventures. A regular review of vendor relationships and contracts will help to ensure rates and terms remain favorable over the long term.
At a tactical level, these cost reduction initiatives should include a monthly review of invoices. The monetary gains associated with monitoring invoices for billing errors are approximately 3-5% of gross spend. Over the course of a year, catching errors of this nature can lead to thousands, sometimes millions of dollars in savings. This is an area of cost savings often overlooked, as businesses assume that once their contracts show favorable rates and terms, the work is done.
Some companies seek to reduce employee numbers as part of their supply chain cost reduction strategy. While job reductions can play a role in cost savings, it is important to recognize that cutting too deeply can lead to new problems. When employee counts fall too low, it can become increasingly difficult to implement needed supply chain cost reduction strategies. History shows that the short term gains associated with job cuts can lead to long term efficiency problems.
Establishing an effective supply chain cost reduction strategy can mean the difference between long term success or failure. Companies around the world rely on NPI to help them achieve successful supply chain cost reductions that balance efficiency with savings. Our expertise with implementing these supply chain cost reductions will ensure your business is poised for growth, while still enjoying the benefits of reduced expenses.
