For any supply chain leader, you likely have two main priorities: generating higher gross profits and lowering fixed and variable costs without disrupting or reducing production numbers. While it can seem like a lofty objective, there are several strategies to employ to reach your business goals.
From managing your inventory in a concise and effective manner and tracking the overall efficiency and performance of your supply chain to building long-term trusted partnerships and investing in high-quality materials like Opal’s range of bulk packaging supplies, there are multiple ways to optimize supply chain operations, reduce unnecessary costs and improve profit margins.
Main Supply Chain Costs
Traditionally, there are five main types of costs in supply chain management. First, there are investment costs, which are used to facilitate multi-site networks of suppliers, retailers, distributors, and manufacturers. Many companies often misjudge spending in this category, investing money into the wrong areas at the wrong time or failing to make effective investment decisions.
Transportation costs play a significant role in supply chain management. Inefficient network planning, routings, and improper resource distribution can often lead to unwanted expenses. Furthermore, selecting the right supplier is vital to managing and reducing procurement costs. By establishing long-term, trusted partnerships with the right supplier, you can ensure that nearly all products and materials are delivered at the correct times and at the best prices.
Finally, you have to consider and budget for inventory costs. Businesses across the supply chain rely on their inventory to buffer against the fluctuating nature of supply and demand. A large inventory is a better safety net, but it does carry more costs, potentially using crucial capital that could be better spent elsewhere.
Cost-Saving Tips
There are several important and effective ways for a company to optimize its supply chain, reduce unnecessary cost-wastage, and improve its margins.
Manage Inventory
For companies that deal with manufactured products, inventory levels could potentially make up nearly 75% of total costs. This includes everything from raw materials and components to subassemblies. An effective way of reducing inventory costs is by switching to a setup like a just-in-time system of inventory management, or JIT.
JIT systems allow you to order and receive inventory as you need instead of having to store a collection of unused stock. This will eliminate costs associated with excess inventory and lower carrying fees.
Another way to properly manage inventory costs is to assess the demands of your consumer base. Tracking ordering patterns will help you establish trends and identify the areas of your supply chain that may need improving. It will also help you better predict inventory levels throughout the year.
Streamline Ordering Process
A simple but effective way to reduce supply chain costs is to ensure that your ordering process is as efficient as possible. This can be achieved in multiple ways, such as using a single software package to make your requisitions.
One central program will allow your company to mitigate the risk of employees using multiple applications that could lead to confusion or conflict, which can often result in excess and unwanted products being ordered. In addition, you can implement an approvals process that only allows approved individuals to sign off on purchases, further lowering the risk of unnecessary purchases.
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Track Performance
One of the most overlooked techniques for reducing costs in supply chains is performance tracking. This is mainly because many companies invest time, money, and energy into fixing and improving their supply chains but often fail to ensure these changes are producing positive results. In some cases, companies fail to adequately track their current models and are unaware of how things are performing.
Key performance indicators, or KPIs, are crucial for establishing realistic targets and aiding you in creating trackable steps to help your company reach these goals.
Improve Cycle Times
Leaders in the manufacturing industry value efficiency and productivity. However, engineering solutions are often overlooked when it comes to cost reduction across supply chains. A handful of solutions can facilitate faster cycle times, improve efficiency, and lower costs.
These strategies include introducing advanced automation and robotics that streamline production, increase efficiency, and significantly reduce overall cycle times. Upgrading machinery and other tools is crucial to maintaining a capable and reliant supply base. This should include the machinery used by your suppliers.
Furthermore, it is worthwhile adopting advanced manufacturing techniques for specific components that will reduce the need for traditional assembly processes and machinery. Finally, it is impossible to improve something you are unaware of. Using data analytics and feedback loops will help you identify the areas that need improvement in real-time.
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Sustainable Long-Term Partnerships
Finding reliable suppliers and vendors, whether local or international, to build sustainable and long-term partnerships is a valuable aspect of lowering general costs and increasing collaboration and cooperation across all supply networks.
These long-term partnerships typically result in considerable cost savings, which often include volume discounts, extended payment terms, and per-unit cost breaks. Building strong working partnerships will also help you ensure less waste, fewer disruptions across the supply chain, and improved flexibility regarding lead times and costs.
