We have consistently found that some of the best and most well-presented research in the supply chain industry comes from The Hackett Group, and that proved true again last week when the consultancy sent us a report on its recent survey of executives from mostly US manufacturers.

The study covered a variety of topics, but what caught our eye was this graphic, relative to expectations for reductions in cost of goods sold (COGS).

First, as shown in the illustration below, manufacturing execs are expecting to reduce COGS by another 1.5% in 2013, after achieving that same level in 2012.

That is actually quite a significant percentage, given manufacturing net profit margins are commonly in the 6% range, and stringing together back to back reductions of this magnitude would substantially improve the bottom line. Indeed, corporate profit margins have been at historic highs in the past few years. However, some of the cost gains are of course lost to price reductions used to either gain market share or meet competition.

Manufacturers Have Aggressive Plans for Cost Reduction Again

for 2013 - But Sources of Savings are Changing

Source: The Hackett Group

What is even more interesting is the areas manufacturers see as the source of those cost savings.

As Hackett notes, the savings seen from more outsourcing are rapidly diminishing, down to just 12%, versus 30% in 2011. "Major companies have already outsourced many of the activities that can be managed by third parties, taking advantage of low cost locations," Hackett says.

Instead, manufacturers see internal manufacturing cost savings as the primary driver of COGS reduction for 2013, comprising 47% of the expected savings, up 31% in 2012. Expect a healthly dose of more Lean.

Savings in procurement costs make up the other 42% of expected savings. Our only comment: it has to be done, but we suspect the track record of predicting commodity price direction is far from stellar.

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