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Five Levers For Optimizing Supply Chain Costs

Supply chain cost management models remain short-term and focused on individual business functions rather than long-term strategic goals. To optimize costs, leaders must align stakeholders around efficient operating outcomes rather than just cost reductions. This involves balancing five levers: product portfolios, networks, processes, operating tactics, and deals. Leaders should drive collaboration around outcomes, develop models linking costs to outcomes, and justify investments by their impact on outcomes.

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148 views6 pages

Five Levers For Optimizing Supply Chain Costs

Supply chain cost management models remain short-term and focused on individual business functions rather than long-term strategic goals. To optimize costs, leaders must align stakeholders around efficient operating outcomes rather than just cost reductions. This involves balancing five levers: product portfolios, networks, processes, operating tactics, and deals. Leaders should drive collaboration around outcomes, develop models linking costs to outcomes, and justify investments by their impact on outcomes.

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Gartner for Supply Chain

5 Levers for Optimizing


Supply Chain Costs
Supply chain cost management models remain short-term and functionally
focused. Short-term cost goals are prioritized over long-term business value, and
a narrow, function-specific focus limits the ability to pursue big change and meet
full performance potential. Reducing supply chain costs is further complicated by
supplier substitution, outsourcing, supplier refinancing and inventory changes.

Cost management remains short-term and functionally focused


Percentage of respondents
1st choice 2nd Sum

Short-term cost goals prioritized


over long-term business value 34% 23% 57%

Functional focus limits ability to


pursue big change 25% 18% 42%

Cost-cutting “fatigue” 14% 16% 30%

Managers protecting individuals


and/or parts of the organization 14% 10% 25%

Unclear measures of success 7% 13% 20%

Poor financial transparency across


the enterprise 5% 12% 17%

n = 203
Base: All respondents
Note: Percentages may not add up to 100% because of rounding.
Source: Fall 2018 Agenda Poll Supply Chain Leaders
Q. Please select up to two of your most pressing problems for: Driving cost optimization across the enterprise.

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1 © 2022 Gartner, Inc. and/or its affiliates. All rights reserved. CM_GBS_1797200
Not only do the best supply chain leaders control supply chain costs in the face of
disruptions like pandemics, recessions and geopolitical shifts, but they also consider
the relationship between diverse resources and networks. Instead of reduction targets,
these supply chain leaders and their key stakeholders focus on aligning and collaborating
around key operating outcomes to optimize supply chain costs.

Align stakeholders on efficient operation outcomes

Efficient operation
outcomes

Individual cost Cost management continuum E2E cost optimization


center control

• High rigor • Strategically aligned • Highly ambitious


• Isolated analysis • Measurable and discrete • Complex modeling
• Static assumptions • Repeatable and sustainable • Limited actionability
Source: Gartner

To optimize supply chain costs, it’s important to align business value (customer experience,
profitable growth, compliance and sustainability) with efficient supply chain operating
outcomes (demand fulfillment, product supply and new products/business).

Optimize operating outcomes to support strategic value imperatives

Customer Profitable growth with Responsible use


Strategic
experience superior return on and protection
imperatives strategies investment of resources

Integrated solutions for joint value creation

Operating Efficient Cost-optimized Risk-optimized new


outcomes
Source: Gartner demand fulfillment product supply business/products

Source: Gartner

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2 © 2022 Gartner, Inc. and/or its affiliates. All rights reserved. CM_GBS_1797200
Supply chain leaders must adjust how they engage with their key stakeholders and propose
initiatives that achieve breakthrough cost improvements. Ground supply chain cost
performance in the following framework, which identifies five levers to manage in pursuit of
end-to-end cost optimization.

Five levers for supply chain cost optimization

Align product and service offerings with customer value and


market competition 5. Portfolios

Align suppy and distribution network to


product and service demand 4. Networks

Design and enable processes and roles


for efficient network operation 3. Processes and roles

Adjust tactics for optimal


supply-demand balance 2. Operating tactics

Minimize
pricing
waste
1. Deals

Source: Gartner

Operationalize the framework by taking the following three actions:


1. Drive collaboration and innovation around cost-optimized operating outcomes.
2. Develop cost analysis models that align to the scope and performance objectives of
specific operating outcomes.
3. Justify investments based on their potential to improve specific operating outcomes.

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3 © 2022 Gartner, Inc. and/or its affiliates. All rights reserved. CM_GBS_1797200
Actionable, objective insight
Position your supply chain organization for success.
Explore these additional complimentary resources and tools
for supply chain leaders.

Research Checklist
Total Cost of Ownership Supply Chain Cost Management
Practical tips for moving beyond simple/ Checklist
unit price. Five actions to manage supply chain costs
efficiently and drive innovation.

Download Research Download Checklist

Benchmarking Webinar
Supply Chain Budget & Optimize With a Stronger
Efficiency CSCO-CFO Partnership
Compare your supply chain costs against Optimize resilience and cost through
true peers. supply chain-finance alignment.

Learn More View Now

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4 © 2022 Gartner, Inc. and/or its affiliates. All rights reserved. CM_GBS_1797200
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© 2022 Gartner, Inc. and/or its affiliates. All rights reserved. CM_GBS_1797200

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5 © 2022 Gartner, Inc. and/or its affiliates. All rights reserved. CM_GBS_1797200

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