Executive Briefings

Decreasing Costs Key in Times of Political, Economic Uncertainty

Staying afloat during times of economic challenge may require companies to rethink the way they have traditionally conducted their businesses. Finding ways to standardize and streamline processes may be essential to reducing costs within the demand/supply chain planning functions.

APQC research finds that more than 60 percent of companies report that political and economic uncertainty has impacted their business entity's supply chain efforts over the past five years by increasing their costs. In response to this, companies can either choose to try and decrease those costs (money going out) or increase their revenue (money coming in). In the current global economic crisis, when consumer spending is down, companies are likely to be focused on ways to decrease and manage costs both immediately and moving forward. Within the APQC database, there are three choices companies have made that are correlated with lower demand/supply planning costs. Further understanding of the impact of these choices may help to inform other companies of ways to decrease their own costs.

First, APQC research finds that companies who have adopted enterprise-wide systems or policies to standardize supply chain planning (regardless of whether the entire supply chain planning operation is centralized or decentralized) report, on average, a 70 percent decrease in demand/supply planning costs. This standardization may result in streamlined processes that require less time and fewer personnel to complete them. Additionally, these companies may be able to procure discounts from suppliers by combining their buying power across departments or entities and creating economies of scale. Having consistent systems across the enterprise may result in other benefits, such as decreased support costs and decreased licensing costs.

Second, those companies who report that they share risks across a network, rather than concentrating them in a single enterprise, also report demand/supply planning costs to be markedly lower. Those who opt for this practice report demand/supply planning costs that are approximately 75 percent lower than those who do not. Adopting this practice spreads the risk across multiple entities, which is akin to avoiding having all of one's eggs in the same basket. This way, any single link in the supply chain may experience turbulence or even be removed completely from the supply chain without causing the company to be completely incapacitated. Also, this practice helps to build stronger partnerships because everyone involved has a vested interest in the outcomes.

Finally, companies that have adopted continuous replenishment with customers report demand/supply planning costs that are 20 percent lower than those who have not adopted this strategy. This approach creates a continuous flow of products that allows the company to keep fewer products in inventory at any given time. Accordingly, inventory costs are lower and the companies are less likely to experience inventory shortages or overages.

By decreasing demand/supply planning costs in the supply chain, companies can free up additional working capital. Especially in an unstable economy, mitigating risks, streamlining operations, and freeing up cash are essential to a company's survival. Those who are able to become the most efficient and decrease their risks are most likely to endure a rocky economic environment.

The Outlook

It is clear that the year ahead will be economically challenging for many, if not most, companies. APQC research has found that those companies that are able to standardize their planning process, distribute risks or adopt continuous replenishment have markedly lower supply chain demand/supply planning costs. As other companies are looking to the future, they should consider whether any of these options are feasible and a good fit.

APQC research finds that more than 60 percent of companies report that political and economic uncertainty has impacted their business entity's supply chain efforts over the past five years by increasing their costs. In response to this, companies can either choose to try and decrease those costs (money going out) or increase their revenue (money coming in). In the current global economic crisis, when consumer spending is down, companies are likely to be focused on ways to decrease and manage costs both immediately and moving forward. Within the APQC database, there are three choices companies have made that are correlated with lower demand/supply planning costs. Further understanding of the impact of these choices may help to inform other companies of ways to decrease their own costs.

First, APQC research finds that companies who have adopted enterprise-wide systems or policies to standardize supply chain planning (regardless of whether the entire supply chain planning operation is centralized or decentralized) report, on average, a 70 percent decrease in demand/supply planning costs. This standardization may result in streamlined processes that require less time and fewer personnel to complete them. Additionally, these companies may be able to procure discounts from suppliers by combining their buying power across departments or entities and creating economies of scale. Having consistent systems across the enterprise may result in other benefits, such as decreased support costs and decreased licensing costs.

Second, those companies who report that they share risks across a network, rather than concentrating them in a single enterprise, also report demand/supply planning costs to be markedly lower. Those who opt for this practice report demand/supply planning costs that are approximately 75 percent lower than those who do not. Adopting this practice spreads the risk across multiple entities, which is akin to avoiding having all of one's eggs in the same basket. This way, any single link in the supply chain may experience turbulence or even be removed completely from the supply chain without causing the company to be completely incapacitated. Also, this practice helps to build stronger partnerships because everyone involved has a vested interest in the outcomes.

Finally, companies that have adopted continuous replenishment with customers report demand/supply planning costs that are 20 percent lower than those who have not adopted this strategy. This approach creates a continuous flow of products that allows the company to keep fewer products in inventory at any given time. Accordingly, inventory costs are lower and the companies are less likely to experience inventory shortages or overages.

By decreasing demand/supply planning costs in the supply chain, companies can free up additional working capital. Especially in an unstable economy, mitigating risks, streamlining operations, and freeing up cash are essential to a company's survival. Those who are able to become the most efficient and decrease their risks are most likely to endure a rocky economic environment.

The Outlook

It is clear that the year ahead will be economically challenging for many, if not most, companies. APQC research has found that those companies that are able to standardize their planning process, distribute risks or adopt continuous replenishment have markedly lower supply chain demand/supply planning costs. As other companies are looking to the future, they should consider whether any of these options are feasible and a good fit.