Change Management Strategies for Cost Reduction

Having an efficient supply chain is the key to reducing its cost. Supply chains usually have several forms of waste that can be trimmed down. This waste includes overproduction, defects, inappropriate processing, and unnecessary motion and inventory, among others.

Your product may have been incorrectly shipped, having received too much, too little, or damaged material. It may not have even shipped on time. In other cases, the warehouse may not have been ready for the delivery truck, so now the driver has to sit and wait for an unknown length of time. These examples are common problems found in supply chains and cause frustration for employees and customers. The errors caused by this waste can result in unsatisfied customers, fines, or increased cost. There are strategies to employ that can cut these forms of waste and reduce costs in your supply chain.

Related: Leadership Behaviour Strategies for Cost Reduction

3 Strategies for Cost Reduction

Standardize Processes: The first way to increase your cost reduction is to standardize processes throughout your supply chain. When you create a common understanding of expectations, there should be little to no variation on how the work is done. Standard operating procedures should be created, outlining each step of the work, including actions to take when things go wrong. If you think your processes could use a good look over and evaluation, you can create end to end value stream maps, including processes outside of your department. Reviewing these value stream maps with stakeholders and all departments—customer service, operations, accounting, etc.—may also generate new ideas as to how to reduce costs. Make sure to ask for input on how well they think the processes are working.

Investigate the Root Cause: The second strategy is to investigate the root cause of your problem. This one might take some work, as lengthy sleuthing can be involved. It helps to create standard issues, problem, and resolution processes. Track the number of issues somewhere, like a piece of paper or whiteboard, and take pictures if it helps. In doing so, you can detect where the problem is coming from. Another good practice is to review your invoices from service providers. Some of these invoices may include additional "value added" service charges for re-work, wait times, etc. These value-added charges can quickly accumulate and potentially cost you a lot of extra money. Following the process from start to finish will also provide some answers. Mistakes can be made across departments—sometimes one isn't solely to blame. Follow the process, leave no stone unturned, and find the errors.

Create Accountability: Creating accountability is the last strategy for increasing cost reduction in your supply chain. Accountable employees own up to their mistakes and are more likely to tell you what went wrong. When addressing the team, don't point fingers; it creates anger and more problems. Address them as a whole with phrases like we can do better, instead of singling an individual out with saying that Andy needs to step up his game.

Following the three strike rule also helps with accountability. The first rule is the reminder. The employee obviously needs a refresher of the expectations, so you'll give them one. The second time the issue happens, it's clear something is getting lost and is misunderstood. Therefore, you retrain employees or fix the process if it can be accomplished in a more efficient manner. The third strike brings with it consequences, fines, and performance rules. After all this time, employees should now know exactly what is expected and how it should be done. If they don't, it's because of their own negligence.

Implementing these three strategies can help you reduce waste in your supply chain. When you standardize processes, you reduce wasted time. When you investigate the root cause, you reduce wasted money, and when you create accountability, you can reduce both.