How to Improve Strategic Cost Management in the New Normal

When you’re under pressure to reduce costs, the first place that comes to mind is your supply chain. In a perfect world, you can find a supplier with lower prices for raw materials or an alternate vendor for a specific part. But in the real world, it’s not always as simple as that.

In this article, we’ll discuss strategic cost management (or SCM), which involves activities that focus on reducing costs over the long term while also meeting objectives in the short term. You’ll learn how SCM can improve your company’s ability to forecast expenses, plan strategically for potential risks, and monitor performance metrics so you know if your cost-cutting strategies are working.

What is Strategic Cost Management?

Strategic cost management is the process that aims to strengthen a company’s strategic position by carefully controlling costs according to the company’s broader objectives. The practice requires separating the costs that help build a company’s strategic position from other costs that may weaken it, then reducing the latter category.

This approach can provide a sustainable competitive edge by combining cost information with decision making. Learn more about the GEP’s strategic cost management strategy solutions.

Why is SCM Important?

SCM is especially important during economic downturns when many businesses struggle to stay afloat. These are times when companies are forced to reduce costs, so they start looking at different aspects of their operations and supply chain.

While reducing costs is always a worthy goal, it’s especially important to implement a strategic plan to do so. As you examine how your company spends money, you’ll also be able to identify areas where you can improve productivity. That’s because SCM is a holistic approach that focuses on both short-term and long-term goals.

Tackling the Big Three: Supply Chain, Inventory, and Operations

The big three are major components of the supply chain. We’re talking about inventory, supply chain management, and operations management. The good news is that improving any or all these areas will likely result in reduced costs.

• Inventory management: Managing inventory wisely is one of the best ways to reduce costs. Using forecasting and demand-planning models is one way to reduce inventory while also meeting customer demand.
• Supply chain management: This includes everything from sourcing raw materials to shipping finished products to customers. Supply chain management includes identifying and implementing ways to reduce costs in each of these areas. For example, you might find a new supplier for a raw material that’s less expensive while maintaining the quality you need. Or you might find a new way to ship a product that’s faster and cheaper.
• Operations management: This includes things like managing employee productivity, customer service, and finance and accounting. You can find ways to reduce expenses in any of these areas to help your business become more profitable overall.

Other Ways to Improve SCM

If the big three aren’t the best fit for your company, don’t fret. There are a few other ways to improve SCM.

• You can look for ways to reduce overhead. This may require challenging your team to find inefficiencies so you can eliminate them.
• You can work to reduce inventory levels by finding ways to increase sales. This may mean adjusting your marketing plan or changing your product offering.
• You can also find ways to improve customer retention. This may involve analyzing why customers defect and finding ways to reduce that.
• You can look for ways to reduce waste. This could involve estimating the time it takes employees to complete various tasks so you can help them become more efficient.

Key Takeaway

Cost management is more than just finding ways to reduce expenses in the short term. A strategic approach to cost management takes a long-term approach by looking at the bigger picture and finding ways to reduce costs in all areas of the supply chain.