Strategies to Decrease Supply Chain Costs

Supply chain professionals continually look for ways to minimize costs without sacrificing quality or customer satisfaction. Here are 10 solutions to consider for keeping your expenses down.

1. Use Predictive Tools to Assess Supply Chain Needs

Relying purely on your instinct or experience when gauging supply chain needs may mean you spend too much in the areas that don’t need so much investment and overlook the places where you could put money to good use.

For example, maybe a particular product or category caused a sales uptick for your e-commerce company last summer. A predictive analysis tool can determine whether that’ll likely happen this year, too. Then, it’s easier to decide which supplies to buy and when.

Another advantage of predictive analysis is that it can prevent stock outages. When those happen unexpectedly, costs can rise as company decision-makers scramble to accommodate the deficit. Intelligent tools can predict customer demand, then specify whether certain regions or age groups are most likely to show interest.

Your goal is to find the balance between too much inventory and not enough. That’s a daunting task without help, but predictive tools can remove the guesswork.

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2. Understand Your Shipping Trends and Find Possible Cost Reductions

Spotting patterns in your company’s shipping requirements will also go a long way in reducing costs. Are many of your customers in a part of the country far away from your distribution center? If so, opening another facility closer to a large number of customers could reduce costs and get orders fulfilled faster.

Issues could also stem from people taking advantage of across-the-board free shipping without making substantial purchases. Many e-commerce brands offer complimentary shipping to attract new and returning customers. However, those companies can quickly accumulate excessive costs if people get complimentary shipping on small orders.

One common strategy to mitigate that issue is to introduce a minimum amount a person must spend to qualify for free shipping, such as $50. That approach could get consumers to spend more than they planned when buying something. Consider showing items to complement what’s in their shopping baskets. Doing that is a smart way to inspire them.

Another possible shipping trend could relate to inadequate packaging. Set up a packing station where you can check the quality of the packaging before sending it out. Look at records of customer complaints and see if patterns exist regarding products arriving damaged. Finding such evidence may mean using the wrong kind of packaging drives up costs. The type used doesn’t give the desired outcomes, and the affected company spends more by sending customers replacement goods.

3. Consider How Robots and Automation Could Reduce Labor Requirements

When asked for their input in a poll, 42% of Americans chose technology as what’s improved life most over the past 50 years. Many business leaders would likely have similar sentiments about tech enhancing their companies and supply chains.

Possibilities abound for applying technology to the supply chain. However, a common tactic is to explore how it could minimize labor requirements. Consider the example of letting an autonomous mobile robot (AMR) bring goods to the right places in a massive warehouse. That approach could save people multiple steps, making them more productive overall.

Automation could also minimize the human influence on repetitive tasks, such as reordering products or sending invoices. Automating some or all of a process’s steps should reduce errors and cut costs.

Some companies invest so heavily in automation that they run “lights-out” factories. Robotic machines in those facilities run 24 hours a day without requiring an on-site human presence.

There’s no need to aim for such extensive automation immediately, of course. Instead, determine which tasks require the most resources. After that, evaluate how automation might help your workers become more productive and save your company money.

4. Outsource When Appropriate

Many supply chain decision-makers initially try to keep all operations in-house. They often think that approach allows them to exert the most quality control over all steps in a process. However, it can become costly if a company lacks the necessary expertise or resources.

Consider the example of an e-commerce company that handled most packaging steps manually. If that business outsourced to a provider with advanced packaging technology on-site, using it could raise the e-commerce company’s output.

Outsourcing could also be the most appropriate strategy for a company with plans for international expansion. It takes time and effort for someone unfamiliar with shipping goods to another country to learn the specifics. Plus, a company could incur more costs by not following the correct regulations. Thus, the most cost-effective approach is to let an outside expert guide the process.

Outsourcing can relieve an existing workforce’s burdens, too. Maybe your e-commerce company is in a rapid growth phase, but you’re not financially ready to hire more team members. If so, outsourcing some supply chain duties could fill the void.

That’s especially true since the people doing the work should already have the necessary skills, reducing time-consuming training.

5. Pinpoint and Remedy Inefficiencies

Even the most highly efficient warehouses occasionally experience slowdowns. Finding and fixing them can keep your supply chain costs down. Inefficiencies can crop up in numerous ways.

For example, having incorrect equipment for a job could raise costs and cause slowdowns. Conversely, you may find that adding new machines for certain steps could keep things moving smoothly. If people must transfer goods to a new machine by hand, see whether a conveyor could accelerate that step.

Communication breakdowns throughout your organization could also make costs climb. Consider an example where there’s no effective process for floor workers to report problems to their supervisors. In that case, inefficiencies could persist for weeks or months until they get severe enough for someone in authority to pay attention.

Examine whether inadequate staffing causes inefficiencies, too. Problems don’t only result from having too few people on a shift. They can also occur when too many people work on specific supply chain duties while other responsibilities lack enough coverage. Investigate what must happen to strike a more productive balance.

6. Become More Proactive About Maintenance

Maintenance issues can quickly interfere with supply chain operations and raise costs. Some company leaders only concern themselves with upkeep after something breaks. They change their behaviors briefly but never become serious about proactive maintenance.

You may initially primarily apply proactive maintenance to machinery. That’s certainly one widely used approach you can achieve with smart sensors and data analysis interfaces. However, there’s no need to stop there.

Check your warehouse’s shelves. Do you see evidence that the shelving has more weight on it than the structure can tolerate? Rotting material could be another concerning issue, especially if you installed a shelving system a long time ago and rarely or never checked it since.

Ensure your facility has adequate protection against inclement weather, too. Even a small roof leak could become disastrous if it ruins products, causes structural damage, or makes parts of a warehouse temporarily unusable.

7. Set and Maintain Supplier Quality Standards

A highly functional supply chain requires a team effort. That reality highlights why it’s crucial to create supplier quality standards. Clarify what those providers must do to stay in a good-standing business relationship, and track measurements to verify that they meet or exceed the standards.

Confirm what will happen due to shortcomings, too. Will you put suppliers on probation? What’s the timeframe for that period?

One widely used metric is quantity ordered versus product received. Consider an example where a supplier repeatedly sends far fewer products than a company ordered. Then, the business would likely spend more elsewhere to make up the difference. However, if a supplier usually sends as many products as a client orders, that’s a sign of reliability.

Another useful metric relates to the percentage of incoming products that pass quality control inspections. If a supplier frequently sends low-quality products, that issue can cause ripples through the supply chain that elevate costs.

Keep track of on-time delivery rates, too. Your customers want accurate information about when they can buy sold-out items again. However, it becomes more challenging to provide it for them if your suppliers repeatedly miss their deadlines.

8. Investigate Nearshoring Opportunities

Supply chain managers often cut costs by offshoring their supply needs. Getting supplies from a distant country often makes sense for the bottom line, but the plan can backfire. The COVID-19 pandemic emphasized this, especially when it caused significant port backups. That’s an ongoing problem.

As of February 2021, terminal operators at two California ports estimated it could take until at least May to clear congestion caused by more than half a million containers. Some estimates suggest the backup could last until 2022. Such significant delays create extraordinary costs for people at various supply chain points.

China has a longstanding reputation as a manufacturing powerhouse. However, it also dealt with the novel coronavirus first. Thus, it wasn’t long before the world experienced the effects of the country’s lockdowns and restrictions. Customers even reported that it took longer than usual to receive orders from Amazon.

Examine whether nearshoring could minimize costs and supply chain disruptions, regardless of whether you have suppliers in China. Nearshoring involves dealing with supply chain partners in countries closer to you.

That approach could help you save money on customs and duty charges, plus shorten arrival times for the supplies you need. Being nearer to a supplier also makes it easier to inspect a site and notice issues that could raise your costs if not addressed. Plus, if your company and its suppliers are in similar time zones, communication-related delays should decrease.

9. Implement Strategies to Reduce Merchandise Returns

Returned products often result in elevated supply chain costs, particularly for e-commerce brands. However, forbidding people to send items back by implementing an all-sales-final policy will likely discourage customers and make them shop elsewhere. Fortunately, there are several things you can do to reduce the chances that people will need to return items.

For example, if you sell clothing, rings, shoes, or other items associated with specific sizes, publish fitting guides and actual measurements to aid people in choosing the correct sizes. Also, encourage past purchasers to write reviews and mention whether what they bought was true to size.

Showing numerous product images is another excellent way to set accurate expectations. Take pictures from various angles and remain aware of how poor lighting could make people draw the wrong conclusions. Allow people to zoom in on images to study tiny details, too. The more you can mimic an in-person evaluation process, the better.

Determine how to limit warehouse errors that cause future returns, too. Perhaps your internal data reveals a spike in customers receiving the wrong items. You might drill down further and see that recently hired team members are most likely to commit that blunder. If so, additional training sessions or coaching could address the matter.

10. Apply the “3 M’s” in Your Supply Chain

Many company-decision makers realize they need to cut supply chain costs, but they’re unsure which steps to take. Using a framework called the “3 M’s” can prove valuable if you’re in the same situation. It involves:

● Measuring your supply chain by creating an overview of its current functionality, key processes, strengths, and weaknesses.
● Managing the flows of goods and communications that affect your company, including decisions made by stakeholders.
● Maximizing the outcomes of every decision made in the organization to have the best chance of achieving multiple advantages from single choices.

An activity for the measuring phase might be looking at how to streamline processes or consolidate cargo. Then, once you’re in the managing segment, that’s a great time to strengthen supplier relationships and reiterate the targets they must meet. You can also create models to assess how possible events could affect your supply chain later.

Finally, reaching the maximizing stage requires forethought about what actions you could and should take to increase the possible payoffs. For example, before your company invests in mobile robots for a warehouse, think about studying the building’s traffic flow and making any adjustments that help humans share the floor space with those nimble machines.

Consider using the 3 M’s approach regularly to keep your choices relevant. As your company grows and changes, so will the information inputted for the framework. When you start distributing a new product, working with new suppliers, or investing in new company assets, those are all fantastic opportunities to put the 3 M’s strategy into practice.

Supply Chain Savings Are Within Reach

These tips will get you off to a strong start when finding supply chain savings. Rather than implementing all of them, choose a couple that most closely align with your current challenges. Then, select metrics to help you judge the strategy’s success.

From there, you can progressively experiment with more new suggestions to optimize the supply chain. Starting slowly and ramping up makes it easier to confirm the most effective solutions for your situation.

Eleanor is editor of Designerly Magazine. Eleanor was the creative director and occasional blog writer at a prominent digital marketing agency before becoming her own boss in 2018. She lives in Philadelphia with her husband and dog, Bear.

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