Of the many ways companies can boost their profitability, simply reducing the costs of their supply chain remains one of the most overlooked.
Companies, on average, are spending more than they need to on their supply chains. The numbers bear this out. Benchmarking Success audits businesses to see how they are doing on average compared to industry bests. With that data, the Logistics Bureau found that,
They have audited almost 1,000 enterprises in different sectors to find that whereas supply chains accounted on average for around 9.8% of sales, the overall rating for best in class for supply chains as a portion of sales was just 5.7%.
With that in mind, clearly the industry as a whole should be doing a lot better in reducing supply chain expenses. While there are innumerable ways to go about this, below are 5 of the most important:
- Knowing the customer
- Using 3PLs
This week’s article by Morai Logistics examines the 5 best ways to reduce supply chain costs.
Strategy is the basis on which an efficient supply chain is built. It is the framework that holds it in place as it commences. As such, if companies don’t sufficiently plan out their supply chain strategy, there’s a high probability of excess in its expenses. A strategy needs to be precise, flexible to differing situations and customer demands, easy to understand, and involve every facet of the supply chain.
Knowing the Customer
It’s crucial to know your customer and personalize the supply chain to them. Otherwise, the potential for waste greatly increases. After all, you can have the most meticulous and well-run supply chain in a vacuum. However, when that supply chain has to adapt to your customer’s needs, it functions poorly. Or, it manages to adapt to customer needs, but that adds unnecessary expenses to chain. It’s crucial to avoid that by having a well functioning supply chain that has room to cater to the customer.
Use a 3PL
Conversely, rather than handling the supply chain planning within your company, you can hire a 3PL provider. 3PLs specialize at making supply chains as systematic and well-run as possible. As a result, as a company you only have to make a fixed payment, no unexpected costs, and the rest will be handled by the 3PL provider.
Automation allows for many operations and processes along a supply chain to be made more efficient, saving time and manpower—both areas where a lot of money can be sunk. Thus, as a company you can see boosts in productivity at most points along your supply chains. Automation can be applied to warehouses, inventory, data collection, transport, and more.
Uncertainty in demand can lead to a great deal of waste and inefficiency. If market demands are higher than companies expect, then their supplies can be lacking. On the other hand, if companies have plenty of inventory but the demand isn’t there, that inventory is wasted. By having accurate forecasting, companies have the ability to align their supplies with the demands of the market, leading to minimal waste in the supply chain.