In today’s competitive business environment, reducing supply chain costs is no longer just a nice-to-have. With fluctuating demand, rising raw material costs, trade wars, and supply disruptions, cost control is a critical part of your supply chain strategy. Effective supply chain cost management directly impacts a company’s bottom line and is key to profitability, growth, and competitive advantage.
Author
Bethany Claps
Manager
4flow consulting
Structured cost reduction customized to your strategy
Traditional cost-cutting approaches focus on marginal gains within each functional area. This approach is insufficient in the face of today’s challenges.
To enable radical cost reduction, we evaluate your entire supply chain and prioritize the highest impact levers. We build a holistic picture of your operations, including your transportation, network, intralogistics, and supply chain planning. This information enables us to identify the greatest savings potentials.
4flow’s approach offers an updated method and mindset to address cost reduction. Like traditional approaches, 4flow begins by documenting and mapping all costs and activities in the supply chain, including operational or administrative expenses. 4flow categorizes documented costs into four categories based on their strategic relevance.
Differentiators are costs associated with activities that provide significant strategic benefits. They create long-term value for both your business and your customers. Examples of differentiators include an innovative supply chain analytics team, or a same-hour delivery service.
Enablers are costs associated with activities that ensure your supply chain meets customer service level demands. Without these activities, the supply chain would be ineffective and fail to meet customer expectations. Examples include decentralized inventories to ensure short replenishment lead times or express air freight to guarantee delivery even in exceptional situations. These activities ensure your supply chain operates efficiently and leaves customers with a positive impression.
Survivors are essential costs associated with activities that ensure the basic functionality of your supply chain. Examples of survivors include warehouse employees who pick customer orders and inbound transportation that facilitates production supply. These activities are crucial for day-to-day operations.
Cast-outs are costs associated with activities of the lowest strategic relevance. These activities do not add essential value to supply chain operations. In line with 4flow’s cost reduction concept, businesses should eliminate these costs immediately for radical cost reduction.
Major cost reduction by cutting out cast-outs
Building a supply chain with this cost reduction concept means relentlessly identifying and eliminating cast-outs in coordination with the relevant departments.
4flow has implemented major cost reductions in all areas of the supply chain with this cost reduction concept.
- For a customer with excess inventory, 4flow reduced inventory levels across the network by implementing a direct-to-customer delivery process.
- Together with a customer with high transportation spend, 4flow increased truck utilization while reducing transportation frequencies by eliminating unnecessary packaging.
- With another customer with a large supply chain organization, 4flow implemented a build-to-ship concept, reducing finished goods inventory holding and eliminating full-time equivalents (FTE).
Across industries from automotive to retail to pharmaceutical, 4flow has helped customers realize savings of up to 30%.
With the cast-out activities eliminated, we can focus on optimizing the remaining survivor and enabler activities together. Efficiency audits and bottom-up calculations help focus on the activities and costs that add the most value.
Cost optimization is a team effort
A cost-efficient supply chain demands commitment across the organization. Key success factors include:
Leadership from the executive level
Culture of cost optimization
Transparent communication
Alignment of cost and strategy
Clear targets
Ensure business continuity
People and capabilities
Cross-functional teams
Stakeholder buy-in
The push for this new mindset must start at the executive level. Company leadership should be onboard to foster a culture of cost optimization throughout the entire team. Setting ambitious, clear goals and creating incentives ensures alignment and coordination. By focusing on critical supply chain success factors, businesses can fully leverage cost reduction potentials in their supply chains.
Ready to discover cost reduction potential in your supply chain?