Over the past few years, we’ve seen unprecedented disruption to the supply chain. Port congestion, surging freight costs, material shortages, and rapidly changing customer demand have created chaos across nearly every industry.
As things start to get closer to normal, it’s time to take a careful look at supply chains with an eye to streamline workflow and reduce costs. Here are some of the key strategies industry leaders are employing to improve supply chain cost control and improve efficiency.
Supply Chain Cost Reduction Strategies That Won't Jeopardize Efficiency
Implement Automation Software
As companies evolve, they often outgrow manual processes and legacy technology. These strategies may have worked fine for low-volume businesses, but are now inefficient. In many cases, newer technology or process changes were implemented on top of older practices, resulting in additional inefficiencies.
Implementing end-to-end automation software to manage your supply chain is crucial to reducing costs and making better decisions. The right automation software can help you manage your supply chain more efficiently, anticipate potential problems earlier, and produce better outcomes.
Create Detailed and Researched Sales and Operations Plans
Positive change rarely happens without a plan. You need strategic sales and operations plans to make informed decisions about your supply chain. This means taking a comprehensive look at every aspect of your supply chain to find efficiencies.
Companies should start by breaking down each stage of the supply chain process and then creating a baseline for measurement. Comparing these baselines to industry benchmarks can reveal areas where operations can be improved. As areas for improvement are identified, businesses can test strategies and compare results against baselines. In many cases, even small adjustments can yield significant results.
Many of the most successful companies employ a strategy of continuous improvement using a six-step approach. Think of each of these stages around a circle with the end pointing back to the beginning:
- Assess current state
- Identify problems or roadblocks
- Establish target goal
- Create strategy roadmap
- Test and measure effectiveness
- Codify results and implement
The most efficient teams continually track and assess performance, returning again and again to the first step for even greater efficiencies.
Hire the Right Team and Ensure They're on the Same Page
The right team, working efficiently, can dramatically improve performance. Supply chain leaders know that hiring the right employees makes a world of difference. Attracting, recruiting, and retaining workers is a challenge across nearly every industry these days, but when you find the right team, magic happens.
Performance improves. Things run more smoothly. You keep customers happy.
Making sure you equip your workers with the technology and tools they need to work efficiently also keeps your employees happier, allowing them to work more efficiently and reducing turnover.
Track Key Performance Indicators (KPIs) and Check Performance Regularly
Focusing on the key areas that drive supply chain visibility and directly affect performance can help you improve efficiency across your entire supply chain. Key areas include:
- Shipping operations
- Inventory flow
- Inventory management
- Supply chain activities
Increasing efficiencies in these areas is essential to reducing supply chain costs.
If there is a potential disruption that could impact your production schedules, you need the earliest warning possible. Real-time supply chain visibility can help provide this warning for late delivery of raw materials. Analyzing KPIs such as terminal dwell time, lane assignments, and deliveries against projections can help you identify bottlenecks and improve supply chain performance over time.
Businesses also need real-time supply chain visibility throughout the product lifecycle from raw materials to suppliers and distributors to retailers. Managing inventory flow and capacity utilization rates can uncover ways to reduce supply chain costs.
Once goods arrive at your facility, managing inventory can still be challenging. Globally, inventory distortion accounts for more than $1 trillion in lost revenue opportunities annually, including stockouts, rush orders, backorders, and excess inventory.
Maintaining tight control of inventory to optimize cash flow is crucial in supply chain management and reducing costs. This helps you identify trends that contribute to lost or missing inventory, overstocks, or dead stock and provides greater insight into stock renewals.
Supply Chain Activities
You also need an overview of all of your supply chain activities to help keep costs under control. Among other KPIs, you should be monitoring:
- Purchase order tracking
- Supplier on-time delivery
- Inventory to sales ratio (ISR)
- Carrying costs for inventory
- Days sales of inventory (DSI)
- Order deliver rates
- Ion-time deliveries
Invest in Better Inventory Management
While all of these KPIs will help you find efficiencies for reducing costs in supply chain flow, your biggest risk remains with inventory management. Your supply chain strategy needs an intense focus on supply chain visibility into inventory.
Real-time inventory counts using passive radio frequency identification (RFID) tags are essential for supply chain cost management, including identifying, tracking, and managing inventory.
Create a Late-Stage Differentiation Strategy for Products
Another way to reduce costs in the supply chain is to implement late-stage differentiation strategies for similar products. Look for areas where you can streamline processes to utilize the same equipment for stages of production and limits the use of different tools to finalize products.
Such strategies are common in auto manufacturing, where manufacturers mass-produce base models and then add minor customizations when cars are ordered. Clothing manufacturers often produce many items in white and then only add the final coloring process to match purchase orders.
This can dramatically reduce waste or excess inventory.
Part of your supply chain strategy should focus on sustainable solutions. Not only can this reduce your carbon footprint, but businesses today are seeing significantly reduced costs from adopting sustainable practices. For example, lean manufacturing practices, increasing equipment utilization, using renewable resources, and adjusting packaging can improve sustainability and reduce costs.
The Right IoT-based Sensors Can Help Minimize Costs
A cloud-based asset management tool using IoT-based sensors and asset tags can provide full visibility into your supply chain. You can instantly check asset status and location, eliminate manual and redundant processes, and reduce workforce costs and lost assets.
Contact Surgere today to learn more about how to reduce supply chain costs and increase supply chain efficiencies.