One of the highest costs that most companies have is in their supply chain— all the processes and people involved in getting products made and delivered to customers quickly adds up. When managers look at all expenses, their first reaction is to try to reduce costs. But lowering costs in the supply chain isn’t as straightforward as it sounds, because you don’t want to cut corners for the sake of cutting corners. Everyone should enjoy the savings from reducing supply chain costs—from suppliers, manufacturers, and distributors, down to customers.
It’s not always about increasing sales
Supply chains are made up of several components, and rarely can a single component be successfully changed without affecting others. The goal is to reduce costs without sacrificing quality, which can only be achieved by looking into every single component of your entire supply chain and finding ways to streamline them all.
To do this, you will need to employ a combination of strategies targeting each stage of the supply chain:
Source Suppliers and Manufacturers
You can approach this by streamlining your purchasing process or communicating better with your suppliers. Doing so will result in a more efficient way of sourcing raw materials and sending requests for quotations.
Control Inventory
By minimizing overstocking and carrying inventory that is not needed, you reduce storage costs as well as the risk of obsolescence.
Standardize Logistics Processes
A standardized process for logistics and shipping means improving the efficiency of things like packing, receiving orders, and invoicing. Doing so will decrease your supply chain costs without sacrificing customer satisfaction.
Although it is crucial to deconstruct a supply chain to identify areas for opportunity, the cost reductions and their consequences must always be examined in relation to the entire supply chain. There’s a rationale for this: cutting the cost in one of the components will likely increase the cost of another. Hence, a holistic approach makes sense in achieving supply chain cost reduction.
What is a spend analysis?
A spend analysis, or supply chain analytics, is a strategic process that involves identifying and quantifying opportunities for cost reduction in the various stages of your supply chain. It’s typically performed through data collection and analysis, which will provide insights into how to reduce costs throughout the supply chain.
Some key metrics that are often considered during a spend analysis include:
- Total Supply Chain Cost
- Inventory Turnover Ratio
- Vendor Compliance
- Return on Investment
- Inventory Levels and Total Cost of Ownership
Each of these metrics can be used to pinpoint opportunities for cost reduction. For example, suppose your current inventory turnover ratio is lower than the industry average. In that case, this clearly shows inefficiencies in your supply chain’s ordering and inventory management processes.
Unexpected outlays and increased costs
A business should be focused on any unexpected outlays or additional costs incurred from its supply chain. However, not all these costs are negative. They could include investments in new technologies, raw materials, and personnel training. To better understand which areas to consider, it’s best to look at the outlay reports to see where unexpected costs came from.
In some cases, you might find that certain areas of the supply chain contribute to an increase in your overall costs. For instance, if you’re relying on a third-party logistics provider to ship parts and products from one destination to another, but their prices tend to fluctuate over time, this could hurt your profitability. In this case, looking for other providers or negotiating directly with your current provider might be a good idea to find more cost-efficient alternatives.
Reducing supply chain costs shouldn’t be at the expense of customer service
While focusing on reducing your supply chain costs is crucial, be reminded that these efforts should not come at the expense of customer service. A successful business can reduce costs while still delivering high-quality products and services that meet or exceed customer expectations.
To achieve this balance, you’ll want to focus on streamlining your processes while also looking into new technologies that could help improve productivity and efficiency. At the same time, maintain open communication with your customers so they fully understand any changes in your supply chain processes.
There have been countless instances of businesses transitioning themselves in the hope of reducing supply chain costs, never realizing that along the way, their focus shifted too much towards cost-cutting to the point that it ended up sacrificing customer satisfaction. Any efforts to reduce supply chain costs should be thoughtfully considered and aligned with your overall business strategy. Doing otherwise could hurt your bottom line and your brand image, which can be far more costly than any one-time savings you might achieve.
Overall, reducing supply chain costs is an ongoing process that involves constant monitoring and optimization of various processes and systems. By following the tips above, you’ll manage to identify areas where costs can be reduced and implement the necessary changes to improve your overall profitability.
Wesgar can help with sheet metal, machining, and copper bus bar fabrication cost reductions
If you need a company that understands how to streamline supply chain costs, Wesgar, located in Port Coquitlam, can help. We are the largest producer of custom precision sheet metal products in Western Canada and the Pacific Northwest, and we specialize in working with our clients to streamline supply chains. Contact us today.
