If you want to improve your company’s bottom line, then looking at your supply chain can be the answer. Due to the complexity of supply chains, there are often several different options available to reduce supply chain costs.
Taming the beast that is a modern supply chain to reduce costs is not an easy task, but the benefits can really improve your company’s bottom line as well as make the day-to-day running of your business easier.
What Costs Exist?
Before looking at ways to reduce supply chain costs, it is worth understanding what types of costs exist. These costs can be broken down into more specialised areas, but the overarching ones are:
Storage Costs
Holding raw materials and finished products can require a lot of warehouse space. This can be costly, especially with there being a lack of available warehouse space currently, which is leading to a premium rate being chaged.
Investment Costs
As supply chains increase in complexity, the need to invest in improving and maintaining them grows. This can be opening new facilities, bringing on new employees, or purchasing new software to better manage your supply chain.
Procurement Costs
Sourcing raw materials is one of the biggest challenges in managing a supply chain. You need to balance the cost of the materials along side the reliability and speed of the supplier. Making the wrong choice can lead to expensive problems if materials are not delivered on time or are of poor quality, with your customers choosing to go elsewhere.
Transport Costs
Getting your finished product into the hands of retailers or customers is one of the most important parts of a supply chain. With cost of transport rising across the UK, planning, and routing is more important than ever to keep costs manageable.
8 Ways to Reduce Supply Chain Costs
Now you know what the main costs are, how can you reduce them? With lots of different options available, we have hand-picked 8 of the best ways to reduce supply chain costs.
1. Look for Inefficiencies
One of the most valuable things a company can do is look at their fulfilment workflow from start to finish. The key thing to look for is manual tasks or bottlenecks that are time consuming and slowing down the process. This is the perfect time to speak to employees and get their insight into how things are working and what problems exist. The insight teams on the ground can provide is invaluable in helping to trim fat and have a more streamlined, cost-effective supply chain.
2. Better Utilisation of Available Space
Warehousing is often a large investment and competition is only increasing these costs each year. Therefore, ensure the space you are in is fit for purpose and that you are utilising the available space as best as possible. Should you find that better management of the area requires less space, then you can save longer term by downsizing where you store goods.
3. Use Quality Packaging
Moving finished products around the country, or the world, can be a potentially damaging task as several people handle and move the product. Good quality packaging can lower the chance that your product is damaged in transit, helping to save money on returns as well as improving the end customers experience.
4. Look at the End-to-End Picture
At least once per year you should ensure that your company is taking the time to look at the full end-to-end picture of their supply chain. The purpose of this is to question each stage of the chain and see where improvement opportunities lie. This could include eliminating parts, improving areas, or general efficiency improvements. This helps to breed a continuous improvement mindset within the company and can lead to reduced costs.
5. Improve Labour Management
To reduce supply chain costs, it is often prevalent to look at your labour costs. This does not have to be cutting team members, rather it is about looking for ways to manage teams more effectively. This can reduce turnover rates and create more diligent teams that work with improved efficiency.
If you notice that you have a high turnover rate for employees, then see what you can do to improve this. Is there training you could offer to upskill them? Are there perks that would make your company more attractive to work for? These might seem like an expense but longer term it will help to reduce recruitment costs and can boost efficiency if you have a higher skilled, happier workforce.
6. Use Robust Sales Planning
While it is impossible to predict the future, robust sales planning will look at things such as previous sales trends, marketing pushes, or external factors that could impact on demand for your product. When done well, this helps to ensure you do not experience a shortage of product or end up with a costly overstock of supplies.
7. Automate Manual Processes
If you are taking a holistic view of your supply chain, then you may start to notice a lot of manual processes. It could be how teams record issues with materials, how stock is tracked, or even how customer orders are handled. These things all waste time but even worse is that they are common and recurring issues. Each day the same manual processes cost resources that could be better utilised elsewhere in the business.
Many of these issues can now be automated using technology. It does not have to be advanced things like AI and IoT either, starting with utilising scanners and better tracking across your supply chain can have a real impact. While there will be an upfront investment for this type of thing, longer term it will help to reduce supply chain costs and ensure you can remain competitive in your industry.
8. Review Performance
When improving your supply chain, it is easy to overlook reviewing the progress made. Are things working as intended? Has there been an improvement in service or a reduction in costs?
Set up KPIs that are regularly monitored and reviewed to ensure the work you have done has been worthwhile. Being able to show the success is important for future improvement projects across the business as decision makers will be able to see it is a smart move with a good ROI.
Why You Should Aim to Reduce Supply Chain Costs
By working to reduce supply chain costs you keep more cash within your business. Not only is this great for the bottom line, but it allows you flexibility that would otherwise not exist. Perhaps you can bring on more permanent or temporary employees or you can look to invest more in automation and SCM software.
What you will often see is a real snowball effect where you can reinvest the cash you have saved to further improve your business or reduce costs in other areas, repeating the cycle.
Another key benefit is that you will have to look across your full supply chain for improvements. This could be how you deliver for customers or the processes of teams that underpin how your company works. Improving these areas might not see a cash position improvement but can lead to more satisfied customers and happier employees, both of which lead to a reduction in turnover rates.
Conclusion to 8 Ways to Reduce Supply Chain Costs
Now you know what costs exist, how to reduce supply chain costs, and the benefits of doing so, it is time to start looking at how they could benefit your business. Make sure you take the time to consider your options and remember that optimising your supply chain is an ongoing process, not a once and done exercise.
If you would like to find out how our supply chain experts can help your company reduce supply chain costs, then get in touch with us.