When thinking about sustainable cost reduction in the supply chain, six key areas can be identified:
1. Reducing Portfolio Complexity:
Complex portfolios have a significant impact on costs associated with sourcing materials, which can reduce operational efficiency. To overcome and reduce this complexity, in the immediate term, companies need to assess product configurations and options to establish sustainable batch sizes, quantities and parameters, and use advanced analytics to understand where their portfolio can be simplified.
After the initial crisis phase has ended, it is time to look at streamlining the variety of products, product configurations and services offered to clients, consolidating the supplier base, and carefully considering outsourcing opportunities. Beyond the crisis and looking at the horizon, say six months ahead, implementing advanced analytics and machine learning tools will help companies to sustain their reduced portfolio complexity in the long-term while aligning the product portfolio closely to customer expectations.
2. Amending the sourcing strategy:
Product portfolios and strategic decisions will drive your sourcing strategy. Decisions will need to be made around whether to make certain products and services in-house or outsourcing elements of or the entire end-to-end production. At this stage of the COVID-19 crisis, businesses should conduct a detailed analysis on their external spend. This can include the assessment of spend by product, by service category, by supplier and importantly should aim to evaluate the total cost of ownership.
A key objective at this stage is to rapidly implement sourcing controls and conduct contract compliance audits to detect any costs created by lack of adherence to agreed contractual terms or pricing.
Next, optimising demand drivers, consolidating and segmenting suppliers and reviewing options to simplify the sourcing product list will be on many companies’ agendas. Further down the track, optimising and automating the purchase-to-pay process and introducing intelligent automation and innovative contracting methods will become key to run a cost-efficient procurement organisation in the future.
3. Closely analysing the company’s footprint strategy:
An organisation’s logistics footprint need and therefore cost will be influenced by decisions around outsourcing, strategic network - such as the quantity, set-up and geographical spread of production and service facilities - and channel strategy.
The current situation is an opportunity for companies to take stock and review their end-to-end footprint and route to market, as well as their customer segmentation with a focus on optimising cost to serve. Creating end-to-end visibility and predictive analytics across the network becomes increasingly important, and in the long term intelligent automation in logistics planning and management will increase efficiency and effectiveness.
4. Synchronising planning:
With demand patterns impacted by COVID-19, a rapid review and resetting of inventory targets is key to most companies’ initial reaction. Next the focus will shift on to visibility with predictive analytics and pro-active issue avoidance while enabling existing digital planning tools. In the long run, companies will look to optimise their planning operating model and enhance visibility across the end-to-end value chain by using AI and predictive analytics to improve planning performance.
5. Amending aftermarket services:
While customer centricity is at the core of most businesses’ mission statements and values, now is the time for businesses to put their money where their mouth is, and review discount strategies and pricing as well as focusing on customer segmentation and aligning service levels accordingly.
Improving aftermarket services by sourcing and reviewing options such as vendor-managed inventory and implementing innovative distribution collaboration solutions can present levers to reduce costs in the long term while successfully focusing on the customer’s needs.
6. Adjustment of the supply chain operating model:
The size, location and scope of the supply chain organisation presents a large cost-reduction opportunity, which is often missed when looking for cost reductions within the business. Now is a good time to review opportunities to leverage outsourcing, offshoring and process automation. Next, conducting an end-to-end process, role and efficiency review in the supply chain organisation and evaluating the footprint of the existing operating model will highlight potential opportunities to optimise the supply chain operating model sustainably.
While companies focus on adapting to immediate changes in demand patterns and process amendments to maintain employee and customer safety and wellbeing, the Amazon story is an indicator that this is a pivotal moment to create an exceptional customer experience, while also focusing on their people and brand, but also keeping an eye on costs.