5 Practical Ways to Reduce Supply Chain Costs

Dealing with economic uncertainties is one of the harsh realities of owning a business. Think the COVID-19 pandemic for example. These uncertainties should motivate your business to adopt a lean, cost-saving culture.

As a business, you also have to deal with rising competition. Lower costs equal increased competitiveness.One of the areas that many businesses find themselves wasting their budget is in their supply chains.

According to Deloitte’s survey of over 400 executives globally, 79% of organizations with efficient supply chains experienced above-average revenue growth. However, the revenue numbers for 92% of companies with poor supply chains were wanting.

If you want to run a profitable business, you have to find ways to streamline your supply chain. Below are 5 ways to do that:

  1. Maximize the use of your space

Do you make the most out of your warehousing space? Most businesses are paying for or maintaining large spaces that they hardly use.

If you are hiring a space that is bigger than what you need, it is time to make a shift. For one, you can outsource warehousing services to the largest 3rd party logistics companies.

Why the largest? Large companies tend to offer more affordable services because they have larger economies of scale compared to small warehouses.

When you hire a 3PL, you only pay for the space that your inventory occupies. It gets much easier to scale your business up or down when seasons change.

  1. Stock according to customer buying patterns

Do you know the behavior of your customers changes overtime? If you have been in business for a while, you should. If you are starting, you need to learn.

Knowing the buying pattern of your customers helps you to plan your stock. To identify patterns, you have to start by asking the right questions.

For example, let’s say you run a furniture company. You may want to know how many orders for living room furniture you have delivered every 4 months. Is there a downward or upward trend? You will also need to identify the reasons for the upward or downward trend for future decision making.

Another factor to consider is the buying patterns of the different customer segments. You can segment customers based on where they live, their lifestyle, their age, their interests, and so on.

  1. Use cross-docking services

Are you incurring unnecessary storage costs you could avoid? Is the shelf-life of your products going down because your goods do not reach customers in time? Cross-docking is your answer.

Cross-docking is a supply chain strategy that ensures that the goods you supply go straight to the intended customer. That means no storage costs and no manual handling.

It is an effective strategy to use if you deal with goods such as superior quality goods that do not require inspection, perishable goods, pre-packaged goods, and staple foods.

With cross-docking, you can save on storage costs and fulfill your customer orders on time.

  1. Centralize your ordering process

Ordering all your goods from one place can help you avoid issues such as over-ordering. It also makes it easy for you to manage your orders.

To centralize your ordering, consider using a single software package for the entire organization.

You should also have a very strict approval process, although not too strict as to delay your operations.

  1. Maintain your equipment

Maintenance is crucial for the proper functioning of your entire supply chain. You should plan for regular checks to ensure that all the equipment involved in the supply chain is in top condition. Check your:

  • Production equipment

While the operations department generally gets a lot of attention when it comes to maintenance,the maintenance strategy you use matters.

There are companies that have standby technicians to repair machinery when there is a hitch. Some companies perform more preventative measures by detecting and acting on problems before they occur.

A proactive approach is a better option for any company that wants to maximize its supply chain efficiency.

  • Transport

You need to maintain your transport vehicles and the equipment found therein.

For example, some goods are shipped under refrigerated conditions. Such refrigerators must be checked regularly to ensure they are in top condition.

  • Labor

Labor is a crucial yet often downplayed part of the supply chain. The health and the working conditions of your employees determine how efficient your production will be.

You need to observe safety and health measures.

Additionally, treat your workers with dignity, avoid overworking them, and pay for some of their benefits if you can afford it.  Such perks will motivate them to be loyal to you. When your employees are happy, it will reflect on your business performance.

Final Words

An efficient supply chain equals a thriving business. Implement the strategies outlined above and be on your way to running a profitable supply chain that will be the envy of your competitors!

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