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Area Development

Supply Chain Cost-Cutting Strategies

2-19-2009
Companies in the process industries (including chemicals, pharmaceuticals, food & beverage, oil & gas, pulp & paper, and health & beauty aides) have had to cope with rising manufacturing and logistics costs over the past few years. To avoid a 7.96% increase in logistics costs (what the average company has experienced in the past two years), companies should follow the roadmap of best-in-class companies, which have been able to reduce costs or keep them flat via supply chain transformation.

In the face of the steady run up in manufacturing and logistics costs, the old strategies for cost containment no longer have the same punch. Companies in the process industries now widely realize that they must restructure their supply chains to take out costs and maintain their customer service edge. Aberdeen's survey found that 75% of all respondents have either recently redesigned or are in the process of redesigning their supply chains.

Best-in-Class Enormous Performance Advantage
The study found a tremendous gap between best-in-class organizations and their peers.
Best-in-class companies have a 2.5X to 9X advantage in improving their key performance metrics since 2005, including improving perfect order percentages and lowering supply chain costs. In addition, the best-in-class have better absolute performance. They are twice as likely as their peers to have:

• Forecast accuracy at the product family level of 71% or better
• Perfect order percentage of 91% or better
• Logistics costs as a % of sales of 6% or less

To achieve these enormous advantages over their peers, they have taken radically different actions in organization structure and supply chain technology investment. As a result, best-in-class companies are much further ahead in closed-loop integration of supply chain planning and execution, in addition to data and process visibility across their end-to-end supply chain and from plant floor to top floor.

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