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Top 3 Cost Cutting Techniques in Supply Chains

In a global economy where companies are under intense cost pressures, upper level managers are focused on reducing costs, improving efficiency and essentially requiring everyone in the organization to do more with less. As such, there is a common movement to explore cost cutting techniques within the supply chain that drive actual results. By taking a strategic approach to cost cutting techniques, you can improve your overall processes while also optimizing the costs associated with the supply chain. Take a look at the top three cost cutting techniques within the supply chain and how they may apply within your environment.

Cost Cutting Techniques: A Focus on Process Optimization

One important focus no matter what cost cutting techniques you employ is the level of risk you may take on by implementing the technique. When you introduce process optimization, you take new risk out of the equation by examining your current processes and reconfiguring to improve your costs without enhancing your risk. Process optimization can be facilitated through the re-engineering of kaizen or six sigma events, or the introduction of new tools, applications or software.

The downside to this approach is that your environment may already be optimized for supply chain efficiency, leaving little room for cost cutting techniques to make an impact. Cummins Inc. utilized this cost cutting technique to identify weaknesses, lower transportation costs and improve the quality of their end product.

Cost Cutting Techniques Include Outsourcing

Certainly not a new concept, companies throughout the global marketplace are increasingly evaluating outsourcing specific processes that they currently manage in-house. Outsourcing is often selected as one of many cost cutting techniques, as well as an opportunity to improve service. You have the opportunity to outsource anything from logistics to procurement to streamline your overall approach to the supply chain.

It is important to remember that outsourcing always has the potential to increase your risk in terms of quality and capabilities. The importance of the process being outsourced must also be considered if this action dilutes your end product or hurts your competitive positioning. If negotiated correctly, however, it can deliver significant control over your cost. Termozeta utilizes this approach to apply cost cutting techniques and streamline its focus.

Improved Sourcing Leads to Cost Cutting Techniques

Strategic sourcing is proving to be one of many cost cutting techniques gaining ground within the global market. You can drive significant benefits by optimizing your demand signals, your supplier base and overall strategic relationships. You can easily take a tactical approach to sourcing; spending only on what you need at the moment, yet this reactive approach can end up costing your company more in the long run. Strategic sourcing demands that you take your corporate strategy into consideration when making decisions and evaluating where you might consolidate your spending into fewer suppliers, geographically grouped suppliers or other strategic approaches. The challenge with this technique is that it does take time to implement and cost benefits may not be measured right away. The U.S. Department of Defense currently uses strategic sourcing to optimize cost cutting techniques.

Overall, your cost cutting techniques should fit within your specific environmental requirements to make a difference in your bottom line. Each of these strategies can present their own risk; but if mitigated correctly, can also produce powerful results.