For many companies, keeping costs low without sacrificing the customer experience can be a difficult balancing act. But in 2026, we need to think less about cutting fat and more about creating supply chain resilience.
In chaos theory, the butterfly effect relates to small system changes that eventually cause larger effects in other areas. The same is true for the supply chain, often called the bullwhip effect, where a single alteration can cause the entire system to react.
“Supply chains are living organisms, but when looking for ways to be more efficient, companies sometimes forget,” KrisTech’s Director of Supply Chain Marcus Tagliaferri said. “Traditional managers who are seeking efficiencies may turn to reducing shipping and raw material costs first to increase profits or share savings with customers. And while it’s a good start, there’s so many levers we can pull to find hidden margins and save money without sacrificing quality.”
Cost optimization is an art and a science. When we do it well, it can generate cost savings AND improve efficiency and profitability.
Cost optimization, especially in the supply chain, focuses on two distinct pieces– reducing expenses and maintaining or improving operations.
Reducing expenses is straightforward; how does the company spend less on inputs and outputs? This could be less expensive raw materials, switching shippers, or reducing inventory. Meanwhile, improving operations is a bit more expansive. This could be a strategic investment to improve product quality, customer service, or operations.
Keep in mind; while reducing costs is one way to increase profits, strategic investments can have a much larger, long-term impact. Ideally, companies with strong supply chains not only cut spending, but refine current performance, and look for investment opportunities.
Supply chains don’t operate in vacuums. Cost optimization is a constant fight made harder by myriad outside forces.
From shifting consumer trends to full-scale global policy shifts and increased variable costs, supply chain managers have a lot on their plates, including:
Tariffs are a tool used by governments to level the playing field for domestic producers. Leveled against other countries, tariffs increase the cost of imported goods, and importers pay them. Those costs, however, generally end up spreading across the supply chain, eventually leading to higher prices.
Imposed tariffs on metals like copper, steel, and aluminum can immediately send ripples throughout our industry. Keeping an eye on what the government is doing can help companies prepare and proactively respond to potential changes.
“Many supply chains have moved toward more domestic lines of supply, diversified international supply lines, or hybrid models, all with the intent of mitigating tariffs,” Tagliaferri explained.
With nearly 200 recognized countries around the world, nations will likely experience a little friction.
Whether we’re talking about pirates near the Suez Canal and countries restricting the flow of resources or trading issues caused by tariffs, there are many fail points. We’ve already seen how quickly a single moment can affect global markets, sending companies and countries scrambling.
But it’s also worth remembering that no organization is an island, and we all depend on partners and suppliers to be successful. The global economy is deeply intertwined; UN Trade and Development (UNCTAD) reports that trade grew 7% in 2025. Despite headwinds, including rising tension and uneven demand, UNCTAD said trade likely topped $35 trillion for the first time.
As previously mentioned, whether we like it or not, we’re part of the global economy. That means competing with other countries and businesses on the world stage.
Since February 2024, copper prices have risen nearly $2/pound. Thanks to artificial intelligence and data centers, renewable energies, and mass electrification, copper use is rising. The fast-rising demand isn’t unexpected but has put incredible pressure on mining companies to keep pace.
Unfortunately, demand is outpacing supply, making it harder to get our hands on the metal, leaving prices high. What’s worse is that economic experts can’t agree on what the future might look like. Goldman Sachs believes prices may come down from their current highs, thanks to a short-term balance in supply and demand.
Morgan Stanley is more pessimistic, with the bank saying in October 2025 that supply chain issues could keep prices inflated. The bank cited several mining problems in 2025 that slowed production, suggesting this year’s supply could lag behind demand.
Cost optimization takes a lot of forms and understanding how to use all the tools at your disposal can go a long way.
From SKU consolidation and advanced production methods to research and development, supply chain managers can easily find savings. For example, SKU rationalization isn’t simply about dropping offerings, but more about optimizing offerings. Excessive offerings often involve tracking, warehouse space, more working capital, and obsoletion risks.
At the same time, demand forecasting and data analytics help managers spot trends and highlight potential gaps. When done well, it’s easier to track inventory levels across seasons by having the right stock in the right place at the right time.
So, why should companies take a closer look at cost optimization, as opposed to simply reducing spending?
Turns out, when you combine cost reductions with targeted investment and improved methods, the sum is greater than its parts.
But, keep in mind, cost savings don’t always mean finding the cheapest inputs possible. Sometimes things are cheap for a reason – it could be less reliable, lower quality, or result in a more fragile supply chain. Strategic investment in supply chain partners reduces risk but leaves product and service quality alone.
For consumers, peace of mind is key. Building diverse and strategic supply chains is more than good business; it’s a cost-saving measure. When situations get dicey and problems occur, it’s easier to pivot and find solutions faster to keep running smoothly.
Cutting costs is a delicate process, but many companies condition themselves to do more with less.
“In reality, investment is just as important as cost optimization, and often they go hand in hand,” Tagliaferri explained. “From implementing AI features to SKU rationalization and streamlining production, the goal is to continually strike balance. Cost reductions are fine, but they can’t come at the cost of customer satisfaction, product quality, or shipping.”
Oftentimes, cost optimization focuses on finding cost effective ways to streamline operations, reduce waste, and improve customer satisfaction. While it seems a bit counterintuitive to spend MORE money, those investments can pay dividends later.
For example, higher quality materials cost more but have a better total cost of ownership (TCO). However, those materials may have a lower failure rate, resulting in less expensive manufacturing processes and better reliability. Overall, higher quality products have a better chance of exceeding customer expectations.
Spending on new technology is also becoming common in many industries. Features like machine learning, robotics, automation, and AI can help companies root out waste and enhance operations efficiency.
Ideally, cost optimization isn’t about cutting corners; instead, it focuses on rooting out bad habits and bloated processes.
By replacing inefficient practices with well-designed business operations, companies can reduce waste and find competitive advantages. If done proactively, cost optimization can even prevent waste from occurring in the first place.