Every business wants to reduce costs, and your supply chain is no exception.
The good news is there are many ways for your company to reduce costs and increase efficiency by making small changes to your supply chain process.
In fact, with all of the factors that go into a cost reduction strategy, this may be the best place to start.
The following tips can help you reduce costs in your supply chain:
- Add diversity to your shipping lanes
- Optimize your supply chain network
- Utilize technology to track the location of each product along the supply chain
- Utilize the right technologies for data management and analysis
- Use a supplier portal
- Lower inventory costs by reducing procurement lead times
- Optimize inventory levels by leveraging just-in-time (JIT) ordering
- Work with an expert to identify and reduce waste in your supply chain
Add diversity to your shipping lanes
Having diverse shipping lanes is the first step in reducing your supply chain costs.
It's no secret that the logistics industry suffers from a lack of efficiency. For example, did you know that in 2012 there was an estimated $400 billion in lost productivity due to inadequate supply chains?
More recently, the 2021 Suez Canal blockage caused supply chain disruptions that cost businesses $900 million in revenue and inventory, not to mention the fact that it caused billions of dollars in losses for related industries, such as trucking, shipping lines, and logistics.
For many shippers, issues that arise from disruptions like the Suez Canal incident could have been avoided if they had more diverse supply chains.
Diversity can be achieved by working with freight forwarders and 3PLs to build alternate routes and modes of transport, which will help you avoid bottlenecks caused by high demand for a single-mode or lane and eliminate potential damages due to delays.
While there are some benefits to using a single mode of transport, such as the speed that an air freight lane provides, diversity can help you avoid incidents. Diversity is also advantageous when considering a supply chain strategy because it's more likely to protect against sudden changes to the global landscape.
A current example of this is that west coast union contracts are up for renegotiation in 2022. If the west coast shuts down, having a consistent delivery pattern on an alternate route—through the east coast—will give you a leg up on the competition. Everyone will be scrambling to get their goods rerouted. Another example is that freight isn’t moving in Port Klang Malaysia at the moment—August 2021—and because of new COVID variants, movement through mainland China is also complicated. So, setting up alternate suppliers and trade lanes is imperative to weather any eventualities that occur.
Optimize your supply chain network
This year, it is estimated that companies will spend $250 billion on transportation. In fact, about one-third of all supply chain costs are related to transporting goods from a supplier or manufacturer to the customer's door.
Sometimes we overlook qualified suppliers that are close to overseas ports when it’s possible to reduce transportation costs by moving goods across smaller distances. Finding qualified suppliers and manufacturers that are nearby will reduce the length your product needs to be shipped. Additionally, you should consider factors such as fuel and labor costs when considering the distance.
Are your suppliers qualified to meet your needs? This article will give you tips on how to measure your supplier's performance.
Even in Canada and the US, the less travel for your goods, the better. There is a lower likelihood for damage, and speed to market is quicker. Since many shipping lines are not sending goods inland, it might be worth warehousing at a port city. Ultimately, you’ll want to find a balance between warehousing and moving your goods.
Reducing transportation costs may seem like a minor detail, but it can help you minimize the total cost of shipping per unit.
Lower inventory costs by reducing procurement lead times
The average supply chain has an excess capacity to store goods, resulting in higher inventories and warehouse expenses. However, we can optimize this process with just a few simple considerations.
First, we should review how much inventory your customers need and if they will need it on the same day as other products. For example, you may want to have one product amply stocked while you store less of another item currently in high demand; this would be better for your bottom line than having too much of a product in danger of not selling quickly.
We should also consider your timeline—how long will the products be sold before updated models replace them? You would need to order more of a high-demand item if there was a long lag between when you ordered and when your customers wanted the product delivered (which is not usually the case for fashion or seasonal items).
Finally, plan your order quantities ahead of time so you don't over-or-understock, but prepare to be agile and make adjustments as needed. It’s also essential to understand the expiration dates on any products and assess if there is enough room for storage based on these parameters.
Inventory costs are a significant concern for many companies, but they can be managed and minimized with this simple list of considerations. That said, optimizing inventory levels by leveraging just-in-time (JIT) ordering is easier said than done amid 2021’s global shipping climate. International shipping reliability is currently at 30% as of August 2021. So, while this tip should be considered a best practice to strive for, it might not be 100% realistic with the ongoing fall-out from the pandemic.
Work with an expert to identify and reduce waste in your supply chain
If you’re not using an expert to identify and reduce waste in your supply chain, you may be missing out on potential savings. Logistics experts understand the nuances of shipping for specific industries and how they flow through the supply chain. With their extensive experience, they can spot opportunities for improvement that could save time or money down the line, such as container utilization and implementing best practices for specific regions. In short, leaning on a logistics provider can help find inefficiencies in the supply chain.
As you implement these tips, don't forget to measure your successes. Keep a running tally of the reduced costs, and compare it against what was spent in previous months or years for the same period. Ongoing tracking of your supply chain KPIs will help ensure continued cost-reduction over the long term.