The optimal strategy for innovative products is to use an efficient supply chain.

Gartner research analysts found that supply chain cost management models remain short term and functionally focused.

Urgent budget pressure is real, but a strategic, programmatic cost optimization approach, versus supply chain cost cutting, helps to avoid risks to supply chain cost efficiency.

To optimize supply chain costs, it’s important to align business value with efficient supply chain operating outcomes.

Analysts identified 5 key levers to manage in pursuit of end-to-end supply chain cost optimization. Are you fully optimizing supply chain costs? Download the guide to find out.

Gartner research analysts found that 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.

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. 

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).

Supply chain leaders must adjust how they engage with their key stakeholders and propose initiatives that achieve breakthrough cost improvements.

Gartner research analysts recommend the following actions:

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

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).

Supply chain leaders must adjust how they engage with their key stakeholders and propose initiatives that achieve breakthrough cost improvements.

Gartner research analysts recommend the following actions:

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

Partner with Gartner to create a supply chain cost management vision that drives tangible performance improvements while also increasing your leadership effectiveness, scope of business influence and strategic relevance.

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Supply chain leaders embark on cost optimization to improve operating efficiency. Improved operating efficiency stems from better planning decisions within and across functions. This is a short-term cost optimization effort that takes weeks to months, and involves simple planning models, reporting and analytics. Supply chain leaders are challenged to increase awareness, provide visibility and reduce waste. Gartner research analysts recommend:

•  Optimizing Supply Quantities, Timing and Sequences
•  Maximizing the Use of Lower Cost Capacity and Supply
•  Reducing Demand Plan Error to Control Inventory Cost
•  Protecting Inventory Value and Managing Obsolescence Risk

Supply chain leaders embark on cost optimization to reduce structural cost. They do this by (re)designing networks, organizations and products. This is a medium-term cost optimization effort that takes quarters, and involves using models to evaluate design tradeoffs. Supply chain leaders are challenged by sunk cost constraints and change sensitivities. Gartner research analysts recommend: 

• Right Sizing the Product Supply Network to Optimize Capacity Cost
• Aligning Organizational Structure for Cost Optimization
• Designing Products and Managing Complexity for Efficient Supply

Supply chain leaders embark on cost optimization to improve cost competitiveness. By transforming processes and operating capabilities, an organization can improve its cost competitiveness. This is a long-term cost optimization effort that takes quarters to years, and involves the operating technologies that improve decision and execution speed and precision. Supply chain leaders struggle with investing resources and driving adoption of new processes. Gartner research analysts recommend:

• Creating Management Systems and Organizational Practices that Drive Cost Optimization
• Investing in Digital Operating Capabilities for Faster and More Precise Execution
• Transforming Supply Planning to Agile, Optimized Network Orchestration
• Developing and Leveraging Advanced Analytics Capabilities