4 Places to Start Cutting Supply Chain Costs

If you’re looking to increase your business’ profits without having to increase sales, cutting supply chain costs is a great place to start. There are several ways to reduce costs such as cutting down on inventory, maximizing shipments capacity, and minimizing resource allocation and retrieval costs. By managing and reworking every step of your supply chain, you can end up recouping anywhere from 5% to 10% of all production costs.

Not only will rethinking how you manage your supply chain save your business money, it can also make your operations run more smoothly and efficiently. An easy place to start your consideration is with the investment in supply chain management consulting. Although spending more on your supply chain seems like a crazy way to save money, this investment can pay significant dividends over the lifecycle of your products. Below you will find four simple and easy to implement ways to easily cut down supply chain costs.

Consider Customer Demands

When a supply chain is typically evaluated, most companies start with the supply. With a focus on customer service and demand, surpluses in inventory and critical to quality product features become extremely apparent. Generally, there is significant room within supply chain operations to reduce inventory and better measure quality inventory, ultimately cutting logistics, warehousing, and capital costs. A good start in measuring customer demand is to analyze purchase order patterns by season or by month. With inclinations to customer forecast, it is possible to adjust your supply base and inventory levels accordingly.

Dual Source

By using more than one supplier, you increase competition for orders and have a better chance of getting a good deal. This technique also helps to mitigate quality and delivery risks. Multiplier suppliers help your business avoid costly delays in receiving product, but can also help you mitigate the repercussions of holidays, port closures, and other unavoidable situations. Duel sourcing from entirely different geographic areas also allows you to reduce logistics costs. Suppliers who know they are competing for business typically will look to give discounts based on volume orders or reveal hidden margins that sole-sourced producers will not.

Streamline Your Purchase Order Process

A large portion of your supply chain cost comes from your ability and methodology in executing orders. Human error and a lack of communication creates opportunity for the order of incorrect part numbers, old drawing revisions, and even incorrect quantities. Not only is this a cash-flow issue, but also an inventory issue. By implementing a more stringent purchasing system and process, risk can be mitigated. Leveraging and investing in other purchase methodologies, such as blanket order systems, Kanban procedures, or processes for Just-In-Time (JIT) delivery, can end up saving money in capital and operating expenses.

Consider Outsourcing

When operations are stressed, employees and products are prone to more quality and delivery issues, ultimately drastically increasing your costs. One way to take the stress off operations and off your employees is to consider outsourcing. More and more companies today are outsourcing production services and operations such as warehousing and transport. Although you will certainly pay a fee for these services, warehousing and logistics companies typically offer greater capacity, skill, and efficiency with regard to the specified operations. This also is an option that prevents the need to invest in new technology and equipment.

Bottom Line

The supply chain is one of the first places you should consider when reviewing your operational costs. Your business stands to see substantial upside by thorough analysis and review of supply chain operations. Supply chain management consulting is a rapidly growing service industry that can provide significant value to any industrial operation.