The need to reduce Cost in the Indian Supply Chain

The aim of any manufacturing/services firm is to produce goods to meet the end-customer requirements. One of the key differentiators which influences a customer’s buying behavior is the price of the product. This is especially true for a mass market like India, where volumes are more important. Another reason for this is the increasing maturity of many industries and the mass commoditization of products. In such a case, the product price and on-time delivery becomes a very critical factor. With the cut-throat competition and increasing input prices, cost reduction is a must to help maintain/increase margins. The competition is so intense that a small price rise of a product might cause huge reduction in demand for that product.

Secondly, there is always a push from the shareholders to maximize their return on investments. As operations cost for a major part of the cost that goes into the product, supply chain cost is the single most important area for cost reduction. However supply chain cost reduction needs to be followed with the customer in focus i.e. there should be no compromise on either the quality of the product or technology or customer service. Also cost reduction has to be a continuous improvement program rather than a one-time attempt keeping in mind the ever demanding customers who wants a better quality product at a lower price. Thus supply chain cost reduction is one of the most critical tasks facing the Indian companies.

When the competition is no longer among individual companies but among entire supply chains, every area of end-to-end cost reduction needs to be looked into. Financial supply chain optimization has helped many leading companies make their entire supply chain competitive, with the introduction & implementation of many advanced SCF (Supply Chain Finance) practices & technology (automated transaction processing).

Finance, supply chain and procurement groups need to ensure their companies are actively adopting SCF (Supply Chain Finance) or risk missing the next wave of cost improvement. This is especially applicable in the current context of the global melt-down.

Cost Management : Best Practices

Cost management leaders confess certain best practices that are critical for it to be a success:

1. Cost management initiatives need to be decided by several functions :
A well defined S& OP process can greatly help framing these initiatives. As with S&OP it is critical to include various functions in the decision making process; these include-

• Finance
• Sales
• Supply Chain
• Production
• Human Resource
• Information Technology

2. Should be specific & limited to shorter time-frames:
In these kind of focused small packages lays the long-term strategic advantage.

3. Clear accountability:
Cost management exercises needs clear accountability where it is necessary to map costs to specific departments / individual heads.

4. Performance Feedback Loops: