Every supply chain is different, but one thing they all have in common is rising prices. Most companies are constantly looking for ways to reduce supply chain costs without creating unhappy customers. Here are a few of the first places to look for cost.
1. Start With Analytics
It’s easier than ever to gather point-of-sale (POS) data by using mobile devices equipped with scanners and credit card readers. Upload and analyze this data frequently to keep an eye on what’s trending. Using a big-data analytics engine brings even more insight by incorporating weather patterns, economic forecasts and even social media mentions to make predictions that can help ensure you have the right products on hand in each location.
2. Invest in Tools to Increase Visibility
According to Aberdeen Research, best-in-class companies are more than twice as likely to have invested in visibility tools that provide insight into supplier quality and manufacturing status than other companies. These companies use their increased insight to keep tabs on in-transit shipments and other supply chain data that helps them make better decisions.
Another supply chain insight that helps retailers provide superior customer service while reducing inventory is connecting devices on the selling floor to inventory systems. This enables the floor team to provide instant information to help customers find exactly what they want, even if it’s not in stock at the current store.
3. Manage Transportation Costs
Too often, purchase orders don’t specify a carrier or shipping method, so suppliers will ship by the easiest method for them. This may not be the most cost-effective method for you. Also, consider consolidating shipments until you have a full truckload (FTL) so you get the FTL rate.
Analyze your distribution centers and product mix to be sure you have inventory available close to where your stores and customers are. Also, consider working with a third-party logistics (3PL) provider that has the expertise to ensure you always get the lowest rates. Freight tariffs are complicated, and the rules and rates vary. Managing your logistics with an eye toward cost as well as service can make a big difference in your overall supply chain expenditures.
Consider outsourcing some or all of your supply chain. You may find that the efficiency gains of working with a 3PL provider outweigh the cost, resulting in you saving money. Managing supply chains efficiently is a 3PL’s core business, so it stands to reason that it would be an excellent fit. For most companies, logistics and transportation are at best a sideline and at worst, a distraction from more strategic activities.
If you have an omni-channel strategy, outsourcing may make even more sense. Most 3PLs can add extra services such as tissue paper wrapping, adding thank you cards, or ribbons and seals for little or no additional cost. That means a customer who orders from your website will get the same services he or she expects in your brick-and-mortar stores.
5. Eliminate Non-Value Add Services
If you practice lean techniques in your operational areas, you probably understand the value of eliminating any activities that don’t add value in the customer’s eyes. Consider using the same techniques to eliminate costs from your supply chain. For example, if customers don’t care about overnight delivery, all that happens when you offer free overnight delivery is raise your own costs: It won’t raise customer satisfaction at all.
6. Orchestrate Your Supply Chain
Many companies have supply chains that grew organically over the years. It’s a sure bet that supply chains like that have higher than necessary costs. The best way to address supply chain costs is to orchestrate the entire value network for efficiency. Start by examining your internal processes to eliminate unnecessary touch points and wasted movement. Then, move systematically through the supply chain, starting with your most important suppliers or known bottlenecks.
As you optimize each node in the supply chain, it’s important to look at costs of the entire supply chain as well as each step’s costs. It is possible to optimize nodes while sub-optimizing the total supply chain.
Be careful not to make the supply chain so lean that it becomes brittle. A brittle supply chain is even more costly than one with too much inventory when you factor in downtime, lost sales and disgruntled customers.
You should calculate the best locations and quantities to hold inventory to tide you over in case of a minor supply interruption. You should also have risk management scenarios in place in case of extended disruptions. That doesn’t mean stockpiling inventory, but it may mean you need multiple suppliers for critical goods.
Managing the costs of your supply chain can help you keep margins strong and customers happy. Start eliminating unnecessary costs from your supply chain with the six ideas above.
About the writer: Chris Miller is Assistant Vice President of Engineered Solutions at Unyson. Chris has been with Unyson since 2004, and has led both analytical and operational teams during his time at the company.
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