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Cost-cutting CFOs consider procurement a ‘very big focus’ according to global survey

Cost Reduction

As cost management and reduction becomes a leading priority for 2024, CFOs are turning to procurement, supply chains and manufacturing in a bid to cut the cloth, according to new global research from the Boston Consulting Group.

The leading management consulting firm, which has offices in Sydney, recently conducted a survey of more than 600 executives to find out what leaders are saying about costs and growth in 2024.

Reflecting recent findings from the Hackett Group’s Key Issues report, the data revealed that C-suite executives are making cost management their top priority to address lingering economic, financial and geopolitical concerns.

Paul Goydan, managing partner and global leader of BCG’s accelerated cost advantage program said this is a holistic cost challenge that’s built up over five years of very rapid adjustments that companies have had to make, reports Supply Chain Dive.

“There’s a very big focus on supply chain, manufacturing and procurement,” said Goydan.

“Sourcing strategies need to be examined in light of sales volume changes and cost inflation. Procurement leaders need to know what size price increases from suppliers are fair, and that means trying to understand a supplier’s true cost of inflation.”

The research found that fewer executives are as pessimistic about macroeconomic shifts as they were in 2023.

A total of 63 percent believe their enterprises are prepared to weather additional global shocks, while 68 percent say they have enough visibility to make decisions about long-term capital investments.

However, leaders remain concerned about global uncertainties and the possible business challenges posed by inflation, rising interest rates and the potential for recession. 

General elections in the US, India and EU were cited as having the potential for far-reaching economic and geopolitical business implications, while there’s worry about the ongoing conflicts in Ukraine and the Middle East.

Disruptive technologies such as generative AI are also pushing leaders to focus on cost management.

More than eight in ten leaders who launch cost programs reported meeting or surpassing their initial savings goals, yet more than a third said costs eventually come back, and almost as many reported that cost cuts affect their business or growth.

Executives are focused on end-to-end cost management, though there is a specific interest in managing supply chain and manufacturing costs.

The report suggests potential levers to manage supply chain and manufacturing cost including:

  1. Direct and indirect procurement: building flexible sourcing capabilities, expanding and enhancing supplier relationships, and identifying alternative markets for raw materials
  2. Digital lean manufacturing: investing in digitisation of manufacturing (e.g. digital twin to identify bottlenecks/risks)
  3. Integrated planning excellence: connecting silos to leverage scale, advancing demand forecasting, enabling digital scenario planning and proactively monitoring for disruptions
  4. Logistics network optimisation: rightsizing network to meet demand, planning for shifting trends in consumer demand and exploring node geo/capacity optimisation
  5. Distribution and warehousing: optimising for delivery speed, exploring warehouse digitisation, enabling location tracking and finding opportunities for automation

Of the trends placing pressure on supply chains, BCG cites scarcity in skilled labour, pressures to meet net zero commitments and shifts in trade regulations, while it suggests increasing geopolitical polarisation will drive near-shoring and shift Russia’s exports from the West to the East.

BCG says companies can unlock resources through quick wins and reinvest them in areas that drive growth, such as digital and AI, talent advancement, modernised supply chains and operational excellence. 

“To support change, top leaders must build a culture that supports it. They can do that by engaging people, translating strategies into measurable actions, treating setbacks as opportunities to learn, and providing other leaders in the organisation with the support and resources they need to balance cost and growth goals,” it says.

“Shifting economic trends, evolving geopolitics and rapidly changing technologies are forcing organisations to evolve. Many are using the circumstances to improve costs. By taking a holistic approach, organisations can unlock funds to invest in strategic priorities that build competitive advantage for the future.”

To learn more, download the full report here.

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