Maximizing The Bottom Line: 6 Techniques for Cost-Effective Supply Chain Management
As a small to mid-size business owner, it is crucial to understand the costs involved in supply chain management and the techniques that can be used to reduce them. The movement of goods and services from the manufacturer to the end consumer can be expensive and challenging. By optimizing supply chain costs, small to mid-size businesses can free up cash to be allocated where it is needed most, take a holistic view of their supply chain, and identify ways to save money and improve efficiency.
There are five main types of costs involved in supply chain management: investment costs, transportation costs, procurement costs, production costs, and inventory costs. Making informed and strategic decisions on where to invest in new facilities and resources is essential for global supply chains. Inefficient network planning, routing, and deployment of resources are the primary causes of higher transport costs. Choosing the right supplier who can deliver the right products and materials at the right times and at the lowest price is integral to keeping procurement costs down. Inflated production costs can be caused by inefficient utilization of certain machines and poor workforce management. While increased inventory may act as a potential safety net, it is also a large source of costs, such as warehousing and transportation costs, that could otherwise be spent elsewhere.
To reduce supply chain costs, SME businesses can employ the following six essential techniques:
- Streamline Ordering Processes: Making ordering processes as efficient as possible is the first of our supply chain cost reduction techniques. Using a single software package to make your requisitions eliminates the risk of employees using different applications and causing confusion, leading to ordering products unnecessarily.
- Manage Inventory: Inventory levels for manufactured products can make up to 75% of your total costs. Swapping to a just-in-time (JIT) system of inventory management can achieve a large reduction in inventory costs. JIT system will enable you to order and receive inventory as and when it is needed, eliminating overheads caused by excess inventory and reducing carrying fees.
- Monitor Customer Demands: By regularly monitoring ordering patterns, SMEs can spot trends and identify areas of the current supply chain that need to be tweaked. For example, one may find that patterns will change from month to month or season to season, and then use this information to make more data-driven ordering decisions. Demand monitoring also helps the companies to be in-stock in the channels where your customers are, whether it is brick-and-mortar or online.
- Make Use of Space: Storing inventory and supplies in a warehouse comes at a cost. By carrying out an assessment of the current practices and reorganizing the inventory, SMEs may find there is a better, more cost-effective way of utilizing the existing space. In more extreme circumstances, one could ascertain that they are simply paying for a space that is too large for their needs and choose to downsize, saving them a lot of cash.
- Optimize Transportation: Transportation generates a significant portion of the supply chain costs in general. Transportation costs can be optimized through proper network planning, utilizing the right routes and modes of transportation for the products being shipped, and negotiating contracts with carriers. SMEs should also invest their return policies and processes significantly as return logistics are proven to generate significantly higher costs compared to forward logistics.
- Automate Processes: Automation of supply chain processes can reduce errors, improve efficiency, and cut costs. Automated systems can track inventory levels, manage ordering and shipping processes, and help prevent overstocking.
By employing these six essential techniques, SMEs can optimize supply chain management costs and improve their financial health. Freeing up cash, taking a holistic view of the supply chain, and identifying ways to save money can unlock new business opportunities, better adaptability, and an enhanced corporate image. Making informed and strategic decisions on where to invest in new facilities and resources, optimizing transportation, automating processes, and streamlining ordering processes can significantly reduce supply chain costs of SMEs and help them to stay competitive in the market.
By regularly monitoring customer demands, making use of space, and managing inventory effectively, small to mid-size businesses can avoid unnecessary expenses and allocate their budget where needed the most. Bucephalus can help SMEs with their demand forecast and inventory planning with a state-of-the-art supply chain ops platform to move their products faster, cheaper, and more sustainably using AI. We supercharge our customers’ operations by giving them a birds-eye view of their supply chain, acting as the connective tissue between the backend of their operations and single-use apps. Our product is continuously processing customer data using our AI systems inspired by our team’s experience working in data science at Amazon.