Companies that take an integrated approach to cost management often can double their overall savings potential. Peter Hanbury, a partner with Bain's Performance Improvement practice, highlights three strategies to battle inflation and maintain productivity gains.
Read the Bain Brief: Cost Inflation Is Back, Putting Supply Chains at Risk
Read the transcript below.
PETER HANBURY: Over the last seven to eight years, deflation has enabled many companies to maintain margins without significantly reducing costs. As inflation increases, many companies are struggling to keep up with the rising tide of costs driven by inflation. Most companies brace for inflation by pulling levers within individual silos or functions—for example, working with the procurement team to renegotiate rates with suppliers, or working with the logistics team to optimize freight routes. This approach often misses opportunities that sit between silos or functions.
One classical example would be product model variations. The sales and marketing team might be adding different variations to support a specific niche market without realizing the exponential increase in costs this might put on the supply chain. We find that companies that take an integrated approach to cost management find these opportunities that sit between the silos and can often double their savings, from 5% to 10% that they might save within a silo up to 10% to 20% that they can find across silos.
Finding these type of opportunities is not natural for many companies. We find there are three ways that companies can improve their ability to find these savings. One, creating clear accountability and ownership—for example, by creating a cost czar or a cost team.
Two, create incentives for these type of savings—for example, by using the shared savings to fund growth initiatives across the company.
Three, creating a business case for these type of opportunities by looking at an integrated view of the cost and savings across multiple different groups and levers.
Leadership teams that take an integrated approach to cost management we find have a new tool to battle inflation and maintain productivity gains for their companies.