New York – Nov. 19, 2018 – Inflation is back.  Most companies typically brace for the impact of rising prices by seeking savings in procurement, manufacturing and transportation and warehousing.  However, leadership teams that implement cost initiatives year after year in each of these silos have to redouble their efforts to generate new productivity gains, making it tougher to hit efficiency targets.

New research from Bain & Company, Cost Inflation is Back – Putting Supply Chains at Risk, shows companies that take an integrated approach to cost management are better equipped to battle rising costs and maintain productivity.  For those that get it right, the prize is huge: they have the potential to double the typical savings from silo-based initiatives to 10-20 percent of total costs.

“As inflation and shifting trade relations begin to affect historically stable supply chains, an integrated approach to cost management can help companies build more resilient organizations while developing a significant competitive edge,” said Caperton Flood, global head of Bain & Company’s Procurement practice.  “An integrated approach offers leadership teams a new and untapped source of savings.  Under normal conditions, those savings bolster the bottom line, but when costs are rising, they can provide a lifeline.” 

According to Bain & Company, most companies work within separated, siloed organizational structures.  They typically overlook the excess costs that span those silos because no one is responsible for tracking them in an integrated manner. 

Successful leadership teams have learned that bringing costs down as prices rise requires them to search across organizational boundaries for cost savings that are hidden in the seams between functions—the areas where responsibilities intersect. 

“Seeking savings in the seams between individual units or functions is not a natural process,” said Peter Hanbury, head of Bain & Company’s Manufacturing Excellence practice in the Americas.  “The problem is that functional leaders tend to look only at data relevant to their function.  Developing and analyzing data holistically across silos is key to identifying opportunities.”

Three guidelines can help companies deliver savings beyond silos:

1)      Establish clear ownership and accountability.  A “cost czar” and cross-functional teams create the missing accountability for cost outcomes throughout the organization. The cost czar has the mandate to form cross-functional teams with managers from product design, procurement, supply chain and manufacturing, develop a program, and weigh the trade-offs of cross-functional cost initiatives.

2)      Create incentives to identify savings between silos and functions.  Misaligned incentives can make it nearly impossible to take out costs that span different functions.If incentives for manufacturing employees reward quality, for example, the manufacturing leader will be reluctant to find ways to lower costs, even in areas where customers do not value the level of quality provided.

3)      Use data and advanced analytics to make the business case.  Individual silos lack data and analytics showing how costs flow across the organization and where savings could lie. Developing and analyzing data holistically across silos is key to identifying the opportunities with individual functions and building an integrated cost initiative.

Editor's Note: To arrange an interview, contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102

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