No matter the size of a business, supply chains demand a sizeable cost percentage. In tough times, reducing chain spend wherever possible will give organizations – especially smaller ones with less budgetary leeway – a competitive and monetary edge. But with something as comprehensive and complicated as a supply chain, how do you judge where savings can be made?
1. Start Small- Perform Cost Analysis Of All Chain Components & Implement Changes Slowly
Knowing what you’re spending, where and why, will help eliminate unnecessary cost. Though this sounds obvious, over time it is easy to loose track of such intricacies, so a detailed spend analysis should be conducted regularly.
- Remember that economizing your supply chain is not an umbrella action. Each component should be reviewed individually to ascertain cost benefits and drawbacks, then risk assessed before changes are implemented.
- Prioritize your changes to address the most pressing business needs and secure future amendments. The costs saved from one change may fuel and stabilize the next. Take the time to make informed actions rather than hastily implementing numerous renovations for security, profit and long term saving.
2. Negotiate With Manufacturers & Suppliers
Where better to start saving than at the basic supplier level? Examine suppliers to ensure you are still securing the product you want for the best cost. You can then decide if current partners are most cost effective, (and negotiate if not), or source new, lower cost options:
- Reducing costs with current suppliers. The lower risk option, if you can negotiate reduced costs this will prevent breaks in production, and will benefit a continued partnership. Negotiating rather than moving may be better for smaller businesses with a less established product who cannot afford to risk production stability. This however, is only effective if suppliers are minded to help. If suppliers deal with larger, more influential clients, they may be unwilling to change for smaller businesses.
- Finding lower cost suppliers. This may be the best option if you have made as many cut backs as possible and are still seeing a decrease in your margins, or, if cost negotiations with current suppliers have been unsuccessful. Sourcing new suppliers increases risk but allows for better costs and innovative approaches. Before switching, assess if business can adjust to the risks associated with changing suppliers or manufacturers.
3. Be As Seamless As Possible
The tighter a supply chain, the greater the potential for savings. To make processes as integrated and streamlined as possible, review supply chain performance management techniques:
- Audit all aspects of your supply chain (manufacture to supply, warehousing and fulfillment to review performance and efficiency. Implement up to date supply chain management software to keep processes as cohesive and responsive as possible.
- Processes, people and technology should all be reviewed. You should be able to save costs by updating and better structuring any of these. Make sure the people involved throughout your supply chain know your money saving goals, and that these goals integrate with processes and technologies to create a synchronized ‘savings-focused’ chain. For example, implementing new warehouse and transport management systems may better suit budget and increase efficiency.
Initially this will require investments of time and money, but will save both in the long run. Additionally, using supply chain forecasting to predict and cater to stock demand will improve efficiency and reduce wastage burdens.
4. Optimize Your Logistics
Plane, train, rail, road – whichever you choose, ensure products are shipped and distributed in the most economical way; at every stage in your transportation network.
- Check that you are not using express delivery for all shipments, as this is expensive and may be a source of unexplained costs. If transit does not have to be speedy, try to use a cheaper option; rail, or even water is more cost effective than shipping by air.
- Regarding imported goods, awareness and compliance with non-tariff trade barriers and restrictions will save money and prevent wastage.
- If possible, consolidate shipments. If you have a number of regional or single country suppliers, consolidate goods into as few shipments as possible to save space, time and cost. Smaller businesses with smaller shipments will often not fill container loads. If other businesses can be found, who import/export to the same locations, forming shipping partnerships may be beneficial.
In the end, when reducing costs in any business situation, it’s most important to maintain a proactive attitude. Only then can challenges be addressed and benefits beyond savings reached.