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At EY, our purpose is building a better working world. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets.
Only 2% of organizations were prepared for the disruption.
The shockwaves that the COVID-19 pandemic sent through the broader economy took a heavy toll on businesses.
72% of enterprises reported a negative effect from the pandemic. Businesses grappled with demand and supply disruptions, inventory imbalances, strained manufacturing capacity and financial uncertainty.
▉ Insight 2
Shaking up supply chain strategies is essential.
The pandemic underscored the need for companies to double down on their cost base to ensure viability, achieve their objectives and fund investment in innovation to drive long-term growth.
With 50% to 75% of the corporate cost of doing business directly influenced by supply chain cost, it’s clear that excessive supply chain costs destroy profitability. The pandemic underscored the need for companies to double down on their cost base to ensure viability, achieve their objectives and fund investment in innovation to drive long-term growth.
▉ Insight 3
A methodical approach to optimizing supply chain costs can fund your organization’s transformation journey and increase revenue.
This type of discipline can also help you:
Increase shareholder value by decreasing the average cost of capital and increasing your return on investment
Reduce business risk by controlling the largest cost associated with business profitability and confirming that target margins are hit with greater precision
▉ Insight 4
A disciplined supply chain cost optimization program becomes essential for business resilience.
Leaders need the tools to understand the end-to-end cost of operations — while optimizing capital expenditures and working capital by streamlining the capital portfolio, refining the real estate footprint and improving tax efficiency.
Some client examples include:
These savings can be applied to the bottom line or reinvested into supply chain or other growth/innovation initiatives.
▉ Insight 5
When evaluating how to rein in costs, short-term thinking can steer an organization astray.
Addressing the deeper causes of out-of-control costs rather than merely treating symptoms is critical. Common remedies, such as quick IT budget cuts, almost never yield long-term savings, and may end up harming your company in the long term as competitors continue to invest.
▉ Insight 6
A combination of options can help chart a path forward.
How can you establish a cost reduction program that is sustainable? We share six ideas below.
Reducing portfolio complexity: Assess the profitability of your company’s SKUs and decide if it makes sense to abandon some variations or introduce more standardization at the finished-goods level.
Amending the sourcing strategy: Examine supplier risk and the rationalization for having each supplier. Can economies of scale be realized by narrowing the number of suppliers for certain materials?
Closely analyzing the company’s footprint strategy: How close are distribution centers to the customer base and to suppliers? Are there opportunities to close some centers and open new ones that can operate more efficiently?
Synchronizing planning: Artificial intelligence and analytics can be useful in helping to determine demand, as can close collaboration with suppliers and production. Third-party data also can be purchased to supplement forecasts.
Adjusting the supply chain operating model: Changes such as shared services, outsourcing, workforce rightsizing, organizational design and work placement, when considered thoughtfully, are worth exploring.
Amending aftermarket services: Any of the other issues described above could be applied to spare parts and their own unique distribution networks in the long term as competitors continue to invest.
▉ Insight 7
Clean and accurate data is fundamental to getting a handle on supply chain costs and reducing costs responsibly.
Building out a strong analytics function can help you understand baseline performance levels, perform simulations, and collaborate better within the business and with third parties. Strong master data on goods, suppliers and customers can be integrated with transactional data to address core areas.
▉ Insight 8
Businesses lacking quantitative and qualitative data and analytics capabilities still can move forward to secure improvements in the short term and beyond.
Start small by posing a few questions: Which areas of the business are in the most distress? Which have the greatest impact on return on investment?
A thoughtful approach to obtaining those answers involves gathering both quantitative and qualitative information, using existing enterprise resource planning (ERP) and supplier data, and conducting interviews with stakeholders that can give a more complete picture of the supply network.
Diagnostic tools are available from trusted advisors to pinpoint:
Problems or opportunities that your organization’s data suggests should get greater attention
