Supply Chains Facing New Pressures as Companies Seek Cost Savings

Supply chain professionals are in the limelight in 2024, but not for the reasons many may think. A recent survey from Boston Consulting Group found that 65% of executives are prioritizing supply chain and manufacturing costs as the biggest levels for organizations to pull for cost savings. This trumps traditional cost-reduction areas such as labor and nonlabor overhead costs (cited by 52%).

“Lingering uncertainty, the need to reshape operations for the future, and disruptive technologies (such as generative AI) are motivating leaders to put cost management at the top of the to-do list,” the report indicated.

BCG surveyed over 600 global executives across various industries for its report, “The CEO’s Guide to Costs and Growth.”

Not surprisingly, respondents cited geopolitical dynamics as an issue that will test supply chain resiliency in 2024. The result is that they believe investment is necessary to stay resilient.

Overall, cost reduction is top of mind. According to survey, 83% of executives report their company was able to meet initial cost savings but 41% said those costs are creeping back up.

The survey also found that talent acquisition/retention and digital disruption are challenges for cost management. Executives said assessing talent (56%) and digital disruption (38%) top the list of intra-company challenges when implementing cost reduction actions.

“C-suite executives told us that cost challenges are exacerbated by the difficulty of finding specialized talent in a tight labor market. Attracting and retaining people with the right skills is the biggest concern of leaders in health care and technology, media, and telecommunications. Cost initiatives are further stymied by disruptions caused by digital and AI,” the report said.

In terms of what areas companies are attacking for lowering supply chain and manufacturing costs, procurement, logistics networks, distribution and warehousing are key areas. Conversely, investment in digital lean manufacturing and advancing planning processes are seen as areas that could lead to savings.

How to get help

For companies that are looking to sustain cost savings, BCG said that quick wins can “unlock resources” that can be reinvested in areas that will drive growth, including modernizing the supply chain, AI, and talent advancement.

“To support change, top leaders must build a culture that supports it. They can do that by engaging people, translating strategies into measurable actions, treating setbacks as opportunities to learn, and provide other leaders in the organization with the support and resources they need to balance cost and growth goals,” the report said.

Outside influences, such as geopolitics, economic conditions, and rapid technology advancement, are forcing companies to evolve their operations, but that is providing opportunity, BCG said.

“Many are using the circumstances to improve costs. By taking a holistic approach, organizations can unlock funds to invest in strategic priorities that build competitive advantage for the future,” the report said.

SC
MR