Fundamental Cost Reduction

Reducing costs, while simultaneously delivering exceptional service and value, is one of the key management challenges that dominate strategic agendas. Strategic Sourcing (i.e. buying smarter to reduce unit costs and total spending), Outsourcing, Reengineering and ERP are examples of strategies organizations have used to achieve this objective.

The problem is that these cost reductions are not always permanent. Inefficiencies creep back into organizations as they change. What is needed is more Fundamental Cost Reduction – one where cost structures naturally self correct to changing market conditions.

The capabilities that address the “Dynamic Strategy” and “Customer Focus” challenges are the same ones that enable these capabilities. In addition to these, we help to establish:

• Greater forward visibility of potential performance and capacity issues to avoid costs
• Measurements of the total cost of doing business with vendors, beyond what is on the invoice
• A single view of vendor performance by consolidating fragmented information from across organizations
• Effective internal customer and supplier relationships to institutionalize how performance is managed
• Measurements of outsourced processes that provide the means to manage outsourcing relationships
• A single view of prioritized cost reduction opportunities that people agree with

For global companies that manage vendor relationships across legal entities and geographies, these capabilities are even more important. This issue is explored further in the “Global Complexity” challenge.