Cost reduction is huge in business and is a big focus for many. How often have you been told to find ways to reduce spending? See, it happens a lot! Businesses who can cut down their spending can increase their bottom line and profitability.
Changes in the economy or marketplace create openings for supply chain innovation, which can lead to new ideas regarding cost reduction.
Companies often fail when it comes to cost reduction because they focus on improving the tools and processes to get there, instead of behaviours. When that tool or procedure fails to reduce their costs, they may try another one or even abandon the effort altogether. These businesses are focusing on the wrong step of the cost reduction plan and need to back up a few steps.
How to Achieve Cost Reduction
Instead of focusing on the tools and processes for cost reduction, focusing on the how and why will prove more successful. The how in this thought refers to the leaders of business. By focusing on the leaders, your cost reduction strategy will become more well-rounded and effective. When these facets are explored, it helps achieve the intent of the change, sustain and continue the progress that was started, execute the change effectively, build resiliency to what doesn't work, and communicate distinct key messages.
So, what can you do to reduce costs or, more importantly, what's the first step? First, it's smart to assess and possibly change leadership behaviour. There must be a willingness from leadership to change, innovate, and improve. Without any of these motivators, your cost reduction strategy will flop; no one will see the need for it. However, if others can be convinced of its benefits, you'll have a team behind you supporting your cause.
Leadership Behaviours to be Assessed
Collaboration: Having leadership collaborating with others—suppliers, partners, other employees—is crucial in determining the success of the proposed change. To effectively collaborate, all affected parties must be willing to solve the problem of cost reduction together. It's important that all parties/departments understand the change, how it affects them and their relationship, and how it affects the business as a whole. Essentially, they must understand their role in the supply chain and how the change will improve it. It must be agreed upon that the change is beneficial for everyone involved, and that the approach is equal. If the change isn't beneficial to everyone, it may be met with resistance. One party may be less involved and unwilling to help make it happen. Everyone involved needs to be in a win-win situation.
Communication: In all stages of the change, especially the initials steps, leadership communication must be transparent. With this transparency comes the trust of those working with you to achieve your goal. The team standing with you will be more willing to work harder and share their thoughts if trust is established. Open mindedness also aides in great communication, helping leadership become more receptive to cost reduction ideas that are out of the box and progressive. When consulting with others, it's imperative that egos are put aside; titles should be forgotten. Everyone needs to be treated as an equal in order to work together effectively.
In internal communication to staff, it's essential that leadership be personable, specific, and detailed. If too much fluff is inserted into messages, employees and other affected individuals will quickly lose interest. Therefore, it's important to be specific and detailed about the information they need to know. Lastly, leadership must practice what they preach. They need to believe in the change 100% to set an example for other staff. If they seem disinterested, staff will quickly forget about the new idea.
Various methods will help businesses achieve cost reduction. However, more successful methods focus on how and what individuals do to embrace the change, rather than the tools and processes used. To effectively implement a change, the leadership behaviours of communication and collaboration need to be top notch. It's only then that the change in your supply chain will be fully supported.