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Managing cost to generate growth and unlock competitive advantage

Proxima
Apr 23, 2013 10:19:00 AM

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Today, businesses are exposed to dynamically changing market conditions, regulatory pressures and increasingly intense competition (particularly from international markets). And since 2008, companies have focused heavily on headcount reductions and slashing budgets to improve balance sheets. But once these traditional means of cost reduction had been exhausted, there was, among some senior management, an attitudinal change to the concept of cost management.

Instead of deploying retrograde management philosophies, a new realization dawned (for some) that one-off cost improvements could only achieve a limited benefit while longer-term, sustained improvements (which require a fundamental change in a company’s culture towards cost management) can deliver significantly more, including enhancements to shareholder value.

Deloitte’s latest biennial cost survey*, published earlier this month, has again underscored the reality that senior management require more education in terms of  “cost management” and how it can be executed to more positively and profitable impact the bottom line.

Traditionally, the sourcing and supply function has been viewed as a basic, back-office function aimed at squeezing suppliers on pricing. Today’s sourcing and supply managers need to be more dynamic in their approach. They need to identify ways of enhancing business processes and, more importantly, re-evaluating the way that relationships with suppliers are managed with the goals of improving service, quality and performance.

With this in mind, here are some key suggestions for cost managers:

  • Know your business and the space in which you operate – the better you understand your objectives, the better the solutions, services and quality you will deliver
  • Don’t be afraid to think differently – a changed approach can only really be identified if you are prepared to stretch the boundaries
  • Remember that a cost is an investment in your business – if you expect a cost to deliver no contribution to the company, it generally won’t. A business spends money to make money, and that moniker is often overlooked
  • Treat your suppliers as if they were part of your own organization – they need to reflect and buy into your own objectives as their efforts are designed to enhance your own performance. Bring them into your organizational way of working and you’ll achieve better visibility on their performance, quality and service

Cost management is changing. As the pace of business, commerce and enterprise quickens, the expectations from customers, partners and shareholders become ever more demanding.

By thinking differently and adopting a progressive, flexible and insightful approach to managing an organization’s costs, businesses will hold a much more powerful command of the way that costs are incurred and senior managers can be empowered to meet challenges head on while delivering sustained improvement to investor returns.

* Save to Grow: Deloitte’s third biennial cost survey: Cost-improvement practices and trends in the Fortune 1000

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