No better time exists than during a recession to challenge mindsets about operations. This may well mean tailoring the business to focus on the new world realities.  Clearly, many key questions need to be addressed in order to get executive minds focused on the importance of operations and supply chains to their business. Here are seven of these key questions to consider:

• What businesses are we in? Why?
• What is our business model?
• Is this business model viable in today’s economic situation? Why? Where? 
• Who and where are our customers, really? Will they continue to buy our products and services? Why?
• How do we compare to our competition?
• Is our organization and culture enabling or hindering our strategies? How do we know?
• How do we describe our supply chains? How well do they enable our strategies? How do we know? What are our inherent risks and unknowns? 

Considering and evaluating these questions often sets the framework for change, for transformation, and for renewed awareness about operations and supply chains.

Work Toward the Three Big Goals

The business operations self-review should set up the strategic agenda that will drive the business through these recessionary times. Certainly these times require prioritization, tight agendas, and vigilant monitoring of key measures. If executed effectively, strategies that align with these three questions will yield major results:

• How can we become more efficient, leaner, and more productive without hurting our future opportunities for growth?
• How do we determine, and then focus on, the right initiatives to improve our operations today and ongoing?
• How can we ensure that we come out of the recession stronger? 

Note that strategies aligned with these three issues balance efficiency, operations excellence, and operations improvement. Cutting expenses for the sake of cutting is not a strategy but a tactic for conserving cash. We should really seek cost reductions and make selected investments inherent to these three goals.

Now, Go After Cost Reductions in Smart Ways

Overall Supply Chains - As companies have gone global, so of course have their supply chains, adding unexpected costs, increased time, and risks to deliver products to end customers. Whether the company sources globally or distributes to emerging markets, or both, its supply chains are longer, more complex, and more subjected to unanticipated costs.

The Supply Chain Network – The locations of production and logistics facilities and their respective missions add costs to the business in multiple categories. Fixed capital, operations, taxes, leasing expense, selling general and administrative expense (SG&A), and others are driven by the network. While rationalizing the global network may require several months to complete, near-term savings potential can be found:

• Within the operations at each facility
• In the routing of product flows between facilities
• In the ownership and operational management of the facilities through outsourcing or contract manufacturing alternatives

Total Delivered Cost – Many companies now have the data to measure the total landed costs of goods. This measure is based on the costs of freight, duties, taxes, and logistics from the source to the company destination.

However, when we wrote the guidelines for the National Association of Accountants on “Managing the Total Costs of Global Supply Chains,” we pointed out that the key measure is total delivered cost, which captures all the costs that go into the product for it to reach its point of purchase at end customers. This measure is far more important, as it should be used to determine pricing and thus margins. Further, it presents many opportunities for cost reduction.

Logistics Outsourcing – The logistics service provider (LSP) industry has grown rapidly throughout the past 10 years, and most companies engage in some logistics outsourcing. Implemented effectively, outsourcing can reduce costs dramatically and remove assets (as well as liabilities) from the balance sheet.

Further, it also provides the potential for continuous improvement in cost management. Service level agreements (SLA) commonly dictate cost reductions enabled by close, collaboratively working relationships between the client and the service provider. These gains are derived from continuous improvement programs geared toward efficiency and productivity gains.

Supply Chain Technologies – While often thought of as a longer term cost reduction method, there are near-term savings potentials through rapid implementations, better use of existing technologies, and greater alignment of the technology enablers to operations. It is estimated that only 50 percent of the capabilities of many supply chain applications are actually applied in analyzing and solving problems.

These are the “Big 5” cost reduction opportunities that transcend the supply chain.

Each has significant potential for cost savings.

A well respected business leader, Larry Bossidy, was once quoted as saying:

“Many people regard execution as detailed work that is beneath the dignity of a business leader. To the contrary, it’s a leader’s most important job.”

In these recessionary and uncertain times, this most important job has taken on added significance, in supply chain more than in perhaps any other area of the enterprise.

Achieving operations cost reductions in smart ways is difficult and challenging. Yet, it is far more beneficial and a stronger contributor to profitability than are the most common methods employed.