Although recent developments in planning and Customer Relationship Management (CRM) have focused more on top-line benefits—growing revenue—the bottom line is still greatly dependent on controlling costs. Companies with a lower operational cost structure enjoy an obvious advantage in profitability, and the ability to adjust pricing to meet competitive pressures, if necessary, to maintain or gain market share.
 

Costs are really just part of the scoreboard. When a company implements world-class operational processes, it improves multiple measurements simultaneously, including cost, lead times, inventory and customer service. This approach is superior to a pure cost reduction focus without the associated business process change, which can negatively impact other operational measurements like availability and customer service. Localized cost reduction efforts can often increase costs in other areas. Moving to overseas suppliers with lower unit costs, for example, will increase costs for procurement, transportation, inventory and reduced flexibility, among others.

The opportunities for cost reduction will vary with the specific situation and the kind of products the distributor handles. Since inventory cost is a dominant factor, significant opportunities for reduction lie in analyzing current forecasting and replenishment management, and devising effective sourcing and positioning strategies to have the right amount of the right inventory in the right place at the right time. It is important to optimize inventory strategy to be able to lower inventory costs without harming customer service.