Managers increasingly expect the supply chain to help them cut costs and improve performance, but the process needs to be balanced, according to a new report by Ernst & Young.
The firm worked with Economist Intelligence Unit to survey 220 senior executives from large corporations for its report, "Global Supply Chain: Balancing Cost Reduction and Performance Improvement." Business process improvement ranked as their top cost reduction initiative, cited by 77 percent of the respondents. Supplier cost reduction ranked next at 60 percent, IT optimization at 49 percent, headcount reduction at 47 percent, outsourcing at 46 percent, training programs at 37 percent, and retention programs at 33 percent.
The primary drivers of cost reduction were competitive pressure (55 percent), profitability (50 percent), increasing investor demand (31 percent), globalization (31 percent), increasing board and audit demand (29 percent), financing infrastructure improvement (20 percent) and financing of shared services and outsourcing (19 percent).
When asked where they believed their supply chain should have a key role in building and establishing credibility with investors, 62 percent cited managing supply chain risk, 61 percent chose delivering bottom-line impact, 61 percent said delivering bottom-line savings to improve contribution to EBITDA growth, 44 percent chose managing green and sustainability issues, and 27 percent cited managing change in the business to realize M&A results.
However, 70 percent of the companies failed to improve their cost/revenue ratio year-on-year for three years after announcing a significant cost reduction program.
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