Four Ways to Introduce Supply Chain Savings and Flexibility

It’s rare to see any supply chain conversation today that isn’t focused either on saving money or introducing flexibility into operations.

Thankfully, these two can often be achieved together through simple adjustments to supply chain operations, regardless of a company’s size.

Four opportunities exist for you to build in flexibility while reducing costs and streamlining processes, though the look is at cost savings over time. The supply chain is a long and involved system, so drastic cuts that keep everyone happy aren’t possible. Let’s look at some decisions you can make for better management at all touch points.

While we delve into supply chain savings and leaner operations, always remember that your customer is more than just data. Any systematic approach to cost savings will need human eyes, and potentially hearts, to make sure changes don’t scare away customers and end up destroying the bottom line.

Inventory Levels

Transportation costs don’t have to be the sole focus of creating supply chain savings. Manufacturers typically top out on transportation costs at somewhere between 5% and 10% of total goods cost. The bulk comes from raw materials, components and subassemblies.

Running an analysis of your inventory level management may show that transportation-savings tactics are actually costing money. Shipping goods more slowly or less often can actually increase the amount of inventory you’re holding, driving up production and warehouse expenses. The cost of this increased inventory is likely offsetting any cost savings you’re seeing in terms of shipment price reductions.

Using quicker shipping and more supply-side staging will also introduce a new level of flexibility to your operations.

Proper Customer Service

Customers shape our supply chains and they must be the driving force behind supply chain development and strategy. Your response to customers must be appropriate for your business while meeting their needs.

Do you offer free shipping or always use next-day shipping when your customers may not always need it? When a customer complains do you automatically add on services like free shipping or increased order size even when that’s not relevant to their complaint? You may be over-serving your customers at the detriment of your business.

Over-service is a hard concept to say out loud, because isn’t the customer is always right?  Your business requires a realistic view of your customer’s value at different levels of service. Customers are happy to pay for your products and services, so complaint resolution and other service processes must be properly aligned.

Think of it this way, if you provide free shipping as a panacea but never address the true problem, you’ll continually be losing money instead of improving a business process.

Redesigning Direct-Store Delivery

Spending the money to revamp a direct-store delivery model is a short-term cost that has a big payout in terms of overall supply chain savings, according to an industry review from Honeywell International.

Honeywell’s survey covered supply chains from Sept. 2012 through 2013, and noted that the 32% of supply chains that reworked their direct store operations are poised to save an average of $734,000 each year.

Savings will be larger for consumer goods that require quick replenishment times. Every ounce of improvement in order-data and systems that move goods to the store from either factories or distribution centers translates into real savings that day. You’d be amazed how quickly an investment makes a full return.

That’s because improvements to the supply chain flow for direct-store delivery will cut down on fuel consumption, improve merchandizing and receiving to run with a more cost-efficient productivity, and hasten payments. The last is perhaps the most enticing in the near-term because it introduces money back in to your business quicker and can help reduce man-hours associated with the collection process.

Supply Chain Outsourcing

Estimates peg the number of businesses that outsource part of their supply chain at 75% to 80%, but it’s easy to see that trend higher.

Warehousing and transportation are essential areas that can benefit from an outsourced operation because of the number of skilled third-party service providers available.

For small shops, outsourcing these two operations can save money simply by freeing up leadership to focus on core operations. Many entrepreneurs and directors didn’t take their role after a long tenure in the supply chain. If it is your weakness, own it and save your time – and company money – by outsourcing to professionals who can provide smooth operations.

Outsourcing can also be used to introduce flexibility in your young service. Companies that specialize in transportation and distribution will have existing processes in place to manage a variable frequency and volume of deliveries, plus the expertise to handle changes in packaging, control or other requirements.

Standard Operating Procedure

While you’re focusing on these cost-saving and flexibility-introducing realms of change, don’t get too carried away. They’re designed to save you money by slimming your operation and freeing you up to tackle major business processes, so they can’t become a focus above other business processes.

At the end of the day, you always need to focus on the proper supply chain principles of strategy definition and execution, meeting customer needs and demands, and measuring success.