Keeping the cost of goods down to stay competitive, relies heavily on your ability to keep down your own costs. Finding ways to cut the “fat” can help you to pass on the savings to your clients/customers. Some areas are impossible to trim away costs from but some areas you can trim away costs from.
Your supply chain may have some hidden savings that you have not been considering. First thing you have to do is to understand is that the notion that only large corporate entities can save on supply chain costs is incorrect.
Sure it is easier to save if you are a large business and you are moving things around in large volume but even if you are not there are ways to cut back on the costs of supply chain management.
What if you could save 15%-50% by taking some very simple steps to reduce your supply chain management costs? How much earnings would that be for your business over 1-2 years? It would likely be a very substantial amount of earnings.
Let’s get right to the nuts and bolts of saving money. There are three key places that most companies overlook, or they approach wrong when it comes to cutting costs from their supply chain. Start with the first area assessment and go through each area methodically.
Efficient sales and operations planning is dependent upon having representatives from every department in the organization that is focused on coming up with a single plan that will define functions across all areas.
Many businesses think of S/OP has a complex structured type meeting when in reality it is just a coming together of multi departments to facilitate planning.
This important process when handled correctly will reduce high levels of slow moving or obsolete stock, frequent unexpected changes of demand or production, poor forecasting, no forecasting and excessive stock losses.
Sales/operations planning is often left up to expensive software and other electronic tools and yes they are important but so is proper in person planning. Before the software can do its job the planning has to take place.
Many businesses can mitigate a great deal of loss by having a stronger S&OP on board. Improving costs can be a very simple act of changing how forecasting is done. Other businesses are looking at more complex changes but it all starts with proper planning. How does S&OP help with your bottom line?
- Less time/manpower putting out “fires” or dealing with emergencies
- Improved stock turn overs and availability
- Overall improved sales and profits
S&OP can also identify packaging needs, what is working and what is not. Which leads us to the next place you should be looking for cost cutting savings.
How efficient is your packaging? There are a few goals you should be striving for with your packaging and all of the goals point to one of the most important overall goal-cost effectiveness. The three factors that will affect your packaging benefits the most are:
- Packaging life cycle
How much of your packaging are you discarding? How much of your packaging is the end user discarding? Why does this matter? For obvious reasons if you are paying for packaging that has a short lifecycle (you use it once and it is disposed of) you are wasting your money.
Packaging lifecycle is an important thing to consider the more use that is gotten out of your packaging the more perceived benefit to the end user.
For example corrugated boxes are a good option but they are not really reusable. A reusable option that can be cycled through out the supply chain can benefit your company and other businesses along the supply chain including the end user.
How effective is your packaging? Are you using most of the space in your packaging for shipping and storing or are you relying on fillers as well. If you can reduce the amount of fillers that you have to use right there is a cost savings.
The idea behind packaging whether it is for storing or shipping has to be “less is more” but not giving up protection for your goods. The most effective packaging is packaging that will provide a snug surrounding for your products so that your products are protected but your cost is controllable.
Proper packaging that is economical, cost effective and has a long lifecycle will help you to reduce overall supply chain costs.
Recently a high paid supply chain consultant offered this free advice
“Any company large or small that is looking to save on costs has to take a long hard look at their packaging, times have changed, regulations are changing, getting ahead in this new economy requires that you pull out all the stops. That means the old way may not be the best way.”
No truer words have ever been said. Change is the key to cost savings. Taking advantage of the newer packaging options will have a positive snowball effect.
Next up is a theory that applies to every link in the supply chain and it is really a question that has to be answered to be able to save costs on supply chain activities. A lot of companies fail to consider the cost of adaptation.
The question is what is the ROI (return on investment) if we make these (fill in the blanks) adaptation compared to scratching what we have and starting new. Sometimes the cost of adaptation is worth it, other times it is not and this where many companies fail.
Many managers take the “evolution is cheaper than revolution” approach to changes that should be made in the supply chain, while this is a long held belief it is not necessary true. Consider this: You want to add pallet collars to your arsenal of packaging but your current supplier does not carry the pallet collars that you want to use as a matter of fact they do not carry them at all.
Now you could adapt to what your supplier does offer but at a cost. It would not actually “cost” anything out of pocket to adapt to what your current supplier can offer but you would feel the “cost” in the potential losses that you would experience from not switching suppliers and getting the packaging you planned on.
In the example above adaptation ultimately would be more expensive than starting from scratch with a new supplier. A review of where you are and where you want to be is imperative but how you are going to get there is also important.
Does your current suppliers have the goods that you need? Do you have to make adaptations in your plan to avoid having to start anew with new suppliers? Will the start-up costs be get you the ROI that you expect? If you opt for adaptation will that get you the ROI that you expect? These are valid questions that have to be a part of your review.
There are other places that you should be looking at to cut your costs like shipping. Are you shipping efficiently?
A recent logistics study has found that many trucks and rail carriers leave with containers that are less than 50% full. There are several reasons that this is occurring but none more important that utilizing inadequate packaging.
Inadequate packaging can greatly increase your shipping costs. When your packaging is not well suited for your product or when it is not flexible you are paying for dead space to be shipped. This is a very expensive endeavor that literally is sucking the profit right out of your pockets.
You have to know when to scrap the old and start new to save on supply chain management.
There are plenty of ways that you can be saving on supply chain management. Many of which are simple and easily overlooked. Setting goals for cost reduction, getting all departments on board and paying attention to the small things can help you to save money on your supply chain management.
The hardest step is the first step. The evaluation process can be daunting and it can even be difficult to get team members on board because many times the attitude is “if it’s not broke, don’t fix it” but that attitude is costly. There is always a better way to do things. There is always a way to save on supply chain management but it lies in taking those first steps.
Set the goals, assemble the teams, delegate the responsibilities and start saving. Know when to cut your losses and when to scrap those things that your organization does that no longer is viable or profitable. It can be a difficult choice to walk away from a supplier that you have been doing business with for a long time but in many cases that is the simplest answer.
Change can improve the cost effectiveness of your supply chain.