Balancing Cost and Resilience with SAP's Richard Howells

In today's volatile business environment, supply chain leaders face a challenging dilemma: prioritising cost efficiency or building resilience.

Writing in a recent blog post, Richard Howells, Vice President for ERP, Finance and Supply Chain at SAP, says the COVID-19 pandemic dramatically elevated supply chain importance.

However, he highlights a marked shift back towards cost-consciousness, before going on to explore how organisations can effectively navigate this tension.

The pendulum swing from resilience to cost

"Supply chain leaders might be feeling a sense of whiplash these days," Richard notes.

"During the pandemic, the supply chain was elevated to a new status as C-suites everywhere recognised the importance of sourcing, receiving and delivering goods, come what may. The supply chain was suddenly seen not as a cost centre but as a strategically vital business function."

However, recent data suggests a reversal of this trend. Richard points out that, according to a late 2024 survey from EY, the vast majority (88%) of supply chain leaders said the C-suite viewed the supply chain as a cost centre, while more than three-quarters (78%) reported they were back to focusing on cost management.

He cites commentary from Michel Roger, Managing Director of Supply Chain and Operations in the SAP business group at Accenture: "I don't think any company is moving back from resiliency—it's just that they are a bit more cautious on the cost implication of it. 

"Maybe it's not resiliency at any cost, but resiliency at reasonable cost."

This financial consideration is understandable given current economic pressures. Richard references Takshay Aggarwal, EY Americas supply chain growth platforms leader, who agrees: "The C-suite is not wrong to focus on costs. They need to do that in order to maintain their P/E ratios and stock prices."

Finding a middle ground

With both cost and resilience remaining crucial considerations, Richard identifies that supply chain leaders must find practical approaches to balance these seemingly competing objectives.

In his analysis, Richard highlights four key strategies to achieve this balance:

1. Speak the C-suite's language

Richard observes that, with renewed focus on low cost, the C-suite's attention to supply chain risk has lapsed, even while it remains high on supply chain leaders' minds. He cites the EY report, which states: "The influence of supply chain leaders may be waning. The C-suite increasingly views [the supply chain's] strategic importance through the narrow lens of cost management."

This perception shift is concerning, particularly when risk exposure remains significant. In the EY survey, around a quarter (24%) of supply chain leaders reported that their organisation was unprepared for a pandemic or widespread health crisis, while 19% said they were unprepared for supply shortages.

To maintain executive attention on supply chain resilience while addressing cost concerns, Richard suggests metrics must evolve.

"Rather than focusing on key performance indicators like cash-to-cash cycles," he says, "supply chain metrics could more directly relate to strategic business goals, such as higher customer satisfaction, increased revenue and larger market share."

This requires breaking down functional silos, with almost all (97%) leaders in EY's research citing challenges with metrics due to lack of integration across functions. Without this integration, it becomes impossible to demonstrate how supply chain investments deliver business value.

2. Use geography to your advantage

Following the pandemic, Richard notes many companies shifted production and sourcing locations to increase resilience and adaptability. The trend toward regionalisation and nearshoring has been significant, with 76% of respondents in a KPMG report saying they were moving supply chains closer to the Americas to better serve the US market.

This geographic realignment offers dual benefits, as Richard explains.

"Bringing supply chains closer to end markets shortens lead times and can help companies to bypass protectionist measures and avoid certain tariffs, says KPMG. In its survey, three-quarters of respondents reported that their strategic shoring had enhanced supply resilience and operational agility."

However, evidence suggests this momentum may be slowing. According to McKinsey data referenced by Richard, the percentage of supply chain leaders actively regionalising or implementing dual sourcing has remained flat over the past two years.

The challenge lies partly in implementation timelines. Richard underlines the thoughts of EY's Ashutosh Dekhne, who acknowledges that, while restructuring and reorienting supply chains to increase resilience and responsiveness is important, it can take several years. 

Ashutosh's suggestion is for companies to leverage technology solutions that enable continuous risk assessment and rapid response planning.

"The calculus for determining the best location for a supply network has changed dramatically in the last few years as the costs of labour, production and distribution have changed," Richard goes on. 

Mary Rollman, Principal and KPMG's Supply Chain Leader for the US, explains that the cost of labour was once "extremely low" and that of logistics "extremely stable". 

But, Richard says: "The last few years have seen rising labour costs in Asia and sometimes dramatic increases in transportation and logistics costs," says Richard. "Companies now need to weigh many other factors, including geopolitical tensions that could close shipping routes and an increasing array of tariffs."

3. Factor in regulatory and tax arbitrage

Regulatory environments and tax considerations add another layer of complexity to supply chain decisions, Richard highlights.

Mary notes: "There is an upward trend of organisations evaluating their supply chains to make them more tax-advantaged."

In KPMG's survey, almost two-thirds (64%) of respondents reported considering indirect taxes, government incentives and transfer pricing when making supply chain location decisions.

The intricacy of these considerations should not be underestimated, Richard warns. He quotes Doug Zuvich, tax partner at KPMG, who explains that even when companies relocate manufacturing to benefit from free trade agreements, they may still face tariffs on components sourced from other regions.

"You really have to get down to what it is you are manufacturing, where the raw materials come from and what laws and tariffs apply," says Doug.

This complexity is likely to increase amid growing protectionism, Richard suggests. He references Rollman again: "Across the board, the role government plays in [the] supply chain is [to take] a heavy hand today and I imagine that will continue to be the reality for many years. Jurisdictions are being very protective of their supplies."

Richard summarises: "Make sure you have the expertise and take the time to consider the implications of local taxes, regulations and tariffs. According to the KPMG study, the top challenges of nearshoring are the difficulty of taking advantage of free trade arrangements and government incentives and the failure to factor tax into the decision-making process."

4. Pull together isolated technology initiatives

Despite significant investment in supply chain technologies, Richard observes their impact remains limited by fragmentation.

He cites McKinsey's research, which found that, while two-thirds of respondents reported progress in implementing advanced planning systems, only 10% had completed these projects. Similarly, visibility beyond tier-one suppliers has actually declined over the past two years.

Elsewhere, EY's survey reveals that 22% of supply chain leaders still rely primarily on spreadsheets and emails for supplier communications, while fewer than half have begun implementing more advanced digital tools and cloud platforms.

The report adds: "Scepticism on the part of the C-suite could reflect past supply chain technology implementations that failed to deliver promised productivity benefits or were scaled back due to challenges during implementation."

The solution, according to Takshay, isn't necessarily more technology but better integration: "You may have 15 different applications supporting your supply chain, but a lot of that data is not effectively utilised because it is confined in a specific functional system or is not connected with other functions across the supply chain, even when a data lake is used."

This siloed approach extends to decision-making processes, Richard notes. Without unified systems providing comprehensive visibility, managers often optimise for departmental goals rather than overall business outcomes.

The competitive advantage of balance

While cost control remains imperative in today's economic climate, Richard concludes that neglecting resilience could leave companies vulnerable to disruption.

He emphasises Michel's point that effective supply chain management is about more than just efficiency: "It's not just about lowering costs in your supply chain, but also [about] how quickly you can react and reacting faster than others. That's competitive advantage."

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