In a difficult economy, the most obvious action item on executive agendas is cutting cost. What might come as a surprise, however, is how often businesses fail to make good on that relatively straightforward objective.

A recent report from Boston Consulting Group reveals the complexity of the task. Surveying more than 600 global executives across industries about their outlook for 2024, it found that 83% failed to meet their initial targets for cost savings. And in instances where cuts were implemented, costs crept back up 41% of the time. All this despite the fact that cost reduction remains the top strategic priority for the current year, BCG says.

Imperfect though it might be, the effort is moving ahead on multiple fronts, says Laura Juliano, author of the survey and regional practice area lead for North American operations with BCG. She says executives are focusing on five major “levers” for reducing cost across the organization: procurement, both for direct and indirect spend; lean manufacturing with a “digital spin”; integrated planning to better match supply with demand; the “right-sizing” of logistics networks, and optimization of tasks within the warehouse.

In yet another surprise, what’s not heading the list of cost-cutting measures is layoffs. That was a big focus during the recession of 2008 and 2009, but it’s not front and center this time around. Nearly two-thirds of survey respondents said they’re prioritizing supply chain and manufacturing costs over cuts in labor and other types of overhead. At the same time, just over half identified talent assessment as a top challenge, a reflection of the labor shortfall that continues to bedevil key parts of the supply chain.

Even where the labor supply is adequate, companies aren’t treating it as an easy way to cut costs. “It’s been extremely refreshing to see the priority list being much more strategic and focused on business-building than in the past,” Juliano says.

How, then, can companies reduce supply chain expense in a way that will stick, without jeopardizing the ability to meet rising demands for better customer service? On the procurement side, an obvious answer lies in reviewing the price of indirect goods and services, with an eye toward achieving economies of scale. Don’t, for example, let five business units make five separate purchases of laptops from the same supplier. And do a better job of understanding actual customer needs for receiving orders, to reduce the reliance on pricey expedited freight service.

Direct procurement presents the “most exciting” opportunities for expense reduction, Juliano believes. She says companies should encourage more competitive bidding from multiple suppliers. At the same time, they should be collaborating with engineering and design teams to create products using fewer and less-expensive materials. Finally, they should revisit the “make-versus-buy” question, to determine whether it makes sense to manufacture a given product in-house, or outsource the job.

Lean manufacturing is “one of those facts of life that has stood the test of time, and will forever,” Juliano says. The notion of reducing waste, rework and process bottlenecks is a “core concept” for every manufacturing organization. The question is which tools are being brought to bear on that objective, and increasingly today, the answer lies in process automation — the so-called “digital spin.” The task of tracking metrics and key performance indicators, for example, can be dramatically streamlined with the removal of manual processes. Data can be entered into the system once, and accessed from a central source. “The core concept is the same,” Juliano says, “but the speed and reliability [of modern-day data management] is light years beyond what it used to be.”

Integrated planning is just as important to an organization looking to manage cost without sacrificing quality and reliability. Supply chain lead times have increased since the COVID-19 pandemic, and the trend shows no signs of reversing. It’s essential for companies today to be “very buttoned up about when to order, when to get [materials] in, what products customers need, and what to keep on hand so you’re not carrying an unreasonable amount of inventory,” Juliano says. Making that mission even more pressing is a rise in the cost of working capital due to higher interest rates.

Logistics and warehousing networks are equally ripe targets for optimization and cost savings. The movement and delivery of goods throughout the network constitute “one of the costliest line items on the P&L,” Juliano says. Manufacturing and logistics need to be integrated so that the placement of distribution centers results in the most efficient handling of products, both inbound to production and outbound to the end customer. Typically, she says, those stages of the supply chain have operated within organizational silos.

All well and good — but why is it so hard to sustain cost reductions, wherever they might be applied? Juliano says cuts are most effectively realized when the company reinvests the savings in growth for the future. But in the act of doing so, “the waters get very muddy about what that investment is going toward.” Often additional cost returns to support areas before top-line growth is realized.

Another reason for the failure to keep costs in check is inflation. Suppliers are constantly seeking increased prices, and so is labor; the resulting rise in per-unit expense over time isn’t always baked into long-term business plans.

Juliano says executives need to make sure that any cost-cutting efforts, no matter how attractive they might seem in the short terms, don’t harm long-term growth. Successful transformations, she adds, are characterized by three elements: the tying of executive compensation and success to the larger goals of the company, engagement of the entire workforce so that all employees feel connected to the corporate mission, and the putting into place of a formal process for setting and regularly updating goals for each function, geography and business unit within the organization, “so all can understand the role each has to play.”