By Deena M. Amato-McCoy

(March 24, 2009) As retailers struggle amid the economic slowdown, a main priority is finding ways to slash operating costs. However, 57% of businesses have yet to identify sufficient savings opportunities from their already-implemented cost-reduction strategies.

This sobering news was reported in the annual “Cost Management” survey, conducted by Stamford, Conn.-based Archstone Consulting. Findings are based on responses from executives from consumer goods and retail, as well as those across manufacturing, automotive, health care, telecommunications, media, and energy and utilities industries.

During 2008, 86% of surveyed companies said cost-reduction initiatives were an integral part of how they operated and resulted in a high rate of success.

As the economy continues to tighten, companies are now shifting strategies in hopes of gaining incremental savings. For example, there was an 11% increase in the number of companies that are redesigning logistics operations. Meanwhile, there was a 9% increase in companies that are deploying shared services, or the consolidation and centralization of IT operations, so they can be used across more business divisions.

Conversely, there has been a 6% reduction in off-shoring activities. Similarly, there is a 4% boost in the number of companies relying on strategic sourcing, a collaborative approach to leveraging targeted spend across locations with select suppliers.

“As companies face this new economic environment, they are relying less on traditional cost-reduction measures and are searching for more creative options,” said Todd Lavieri, president and CEO, Archstone Consulting. “Companies today have to act very aggressively to protect their profits. They need to review their previous cost-reduction plans and reexamine the savings opportunities that were left on the table in 2008.” 

Implementation delays and a lack of resources are two factors that continue to take their toll on companies. However, upfront investment requirements, regulatory implications, potential quality and customer-service risks seem to be pushing retailers to consider new strategies.

“They are consciously searching for hidden cost-reduction opportunities by tackling areas typically considered out-of-bounds in the past,” said David Wireman, principal and operations improvement practice leader at Archstone.

Retailers should not discount previous efforts. New initiatives are augmenting, not replacing, existing plans. “They are trying to capture planned but unrealized savings from past efforts,” he said.