Cutting Costs in Your Supply Chain

by Joe LaMantia and Ron Quick

 

Supply chain costs are increasingly being targeted for reduction due to the potential benefit to profitability. Businesses simply have to invest in this key aspect of operations to receive raw materials and components consistently, produce inventory efficiently and confidently deliver finished products to customers.

Strong supply chain planning, management and tools help businesses just like yours reduce costs and enjoy the many benefits that come with more efficiency and less waste.

Basic improvement strategies for these three supply chain attributes

The obvious issue with costly supply chains – reduced profitability – is clear to many stakeholders and leaders. Other problems, which can be even more harmful, may not be. Some serious problems that come along with a costly supply chain but aren’t always immediately visible include:

  • Loss of competitive advantage: Without the right technology and management processes in place to make your supply chain more agile, your business may find customers flocking to competitors who provide better service and more consistent delivery.
  • Decreased ability to scale: When supply chains involve excessively high costs, they can’t easily be scaled as a company chooses to grow its market or expand its offerings. Because costly supply chains depend a great deal on manual, people-driven processes, companies have to hire more staff when scaling than would be necessary with a leaner approach.
  • Increased vulnerability to employee departures: With a supply chain model that depends on an excessively high degree of employee involvement, the entire model can be thrown into disarray when a key staff member leaves.
  • Problems compounding in the long term: The issues detailed above can easily compound as time goes on. Supply chain costs will increase disproportionately, while more successful competitors avoid those issues and grow in terms of reputation and market share.

5 practical, effective steps to start lowering supply chain costs

Five straightforward actions can help build momentum as your organization works to realize the big-picture benefits of a cost-efficient supply chain:

  1. Implementing lean processes.
    Identifying time consuming, error prone steps in the supply chain is entirely possible on a short timeline. To expedite the process and ensure no stone is left unturned, companies can work internally or with an outside expert to highlight areas in need of improvement and to start implementing a stronger strategy. Specific actions can include everything from automating manual processes to reducing excess inventory and shortening time to order.
  2. Managing inbound logistics.
    Rather than allowing suppliers to select the mode and shipper and pass on those costs, take over the management of inbound freight, especially where high current costs exist.
  3. Rationalizing the supplier base.
    Working with an excessive number of suppliers, especially where overlap exists between their offerings, limits the advantages companies can gain from stronger, more consistent relationships with a smaller group of suppliers. Businesses can spend more per supplier, gaining better price concessions, among other benefits. Price validation and competitive bidding are also more effective.
  4. Eliminating and reducing errors.
    Reliance on manual processes results in a higher level of costly errors in the supply chain. Identifying and correcting them through the use of new, responsive and easily managed tools can be a relatively quick process.
  5. Celebrating early wins.
    When each of the processes outlined above leads to a recognizable, positive change, highlighting and celebrating them can help promote the benefits to staff. This approach helps to build a company culture that recognizes the advantages of a less-costly supply chain and points out how this approach supports the day-to-day work of employees.

A few key considerations for cutting costs in the supply chain

A supply chain strategy is key for targeted growth and sustainable reduced costs. Businesses may draw on their own internal expertise or work with an outside expert to develop a plan that addresses their own unique needs.

One key component of a supply chain strategy is the right technology.Technology is absolutely necessary when it comes to cost reduction. Portals for communication among your business, suppliers and customers are vital in terms of reducing timelines, avoiding errors and cutting down on the time staff spends on processes that could be automated easily. Data analysis is another key consideration. While the standard ERP systems collect huge volumes of data, they don’t generally offer streamlined, simple and effective access to actionable information. Identifying everything from early and late deliveries to excess inventory and problems with suppliers makes supply chain improvement actionable. The right technology gives your organization the power to make informed decisions about major issues and opportunities while improving the insight and productivity of staff.

Education and company culture must also be prioritized in this context. The best possible strategy and technology can only do so much if staff don’t understand how these changes benefit the company as a whole and their own tasks and responsibilities. Business leaders need to provide the necessary training on specific tools and new processes and celebrate early and longer-term wins.

Finally, businesses must also include their suppliers and customers in the improvement process to ensure areas where collaboration is necessary for change are properly addressed. Early outreach that explains new workflows and the strategy behind them can go a long way.

Cutting costs in the supply chain will translate into short and long term benefits for your business. Quick improvements, like addressing communication issues and automating manual processes, increase efficiency, reduce supplier-lead time and improve inventory management.

To remain competitive, your business must address issues in its supply chain and remove unnecessary costs.

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