Climbing supply chain costs are among the ongoing challenges for many managers. However, they can minimize them with creative and targeted strategies. Here are some of them.
1. Pursue Relevant Digitization and Technological Upgrades
Some supply chain managers are still doing too many things manually and without relying on digital platforms. That means they could miss out on productivity boosts and cost reductions. A 2022 survey of chief supply chain officers found that 77% cited the rising transportation and logistics costs as the top challenges they face. Another 60% said the need to expedite products for customers led to transport-related price increases.
However, respondents intend to deploy various technologies to improve their workflows, which should, in turn, cut costs. For example, 87% are implementing execution management solutions. Additionally, 77% use process and task-mining to improve their operations.
Most respondents are also looking to the future when making their supply chain updates. For example, 83% expect to utilize artificial intelligence-enabled inventory management for real-time updates by 2025.
Another takeaway was that nearly three-quarters of respondents (72%) expect they will have mostly automated workflows and processes within the next three to five years. It takes time, effort and investment to successfully digitize a supply chain with the technologies mentioned here. However, such allocations of resources could pay off, especially if they help supply chain managers handle their growing costs.
2. Try to Get Products From More Sources
Source diversification is another strategy that can reduce supply chain costs in today’s landscape. The COVID-19 pandemic provided a prime example of how quickly supply chains in certain regions of the world could break down due to lockdowns. Other risks, such as political unrest, can cause unexpected issues.
However, supply chain managers who make conscious efforts to get their products from a greater pool of sources find it easier to respond nimbly to potential or actual disruptions. They can focus on parts of the supply chain that are less affected.
In a 2021 Deloitte survey, 44% of chief financial officers indicated they experienced cost increases of 5% or more due to supply chain delays or shortages. Relatedly, 32% of respondents reported falling sales in 2021, and 28% anticipated drops in future sales due to these challenges.
However, 69% of people polled expected to focus more on diversifying sources to overcome the difficulties. Taking that route is not without risks. That’s why it’s essential to vet all suppliers and evaluate aspects beyond their locations. Looking at the short- and long-term value they’ll bring to the supply chain will help managers make informed decisions about whether to use them.
3. Become More Conscious of Toll-Related Charges
Professional truck drivers are vital parts of modern supply chains. They must make each journey as efficient and productive as possible by paying attention to state border crossings. Truckers pass through weigh stations and abide by different traffic laws as they enter new states. They also have to pay tolls on the way to their destinations.
Paying tolls can now happen faster than before, mainly because many toll operators allow and encourage drivers to use electronic transponders. Since this approach does not require cash transactions or human operators, it reduces overhead costs. Truck drivers can also pass through the toll plaza lanes without stopping.
Even though this way of paying the toll is typically more convenient for everyone, it’s not error-free. Statistics indicate that about 3% of all electronic tolls result in a misread. However, if a truck driver’s supervisors don’t monitor for and dispute those instances, toll-related bills could be up to 60% more expensive than necessary.
Another tip is to check state-related programs and see if there are discounts for companies or individuals who will pass through tolls in certain parts of the country. Toll-related charges may seem like relatively small expenses, and they sometimes are. However, they can add up, especially when supply chain managers have dozens of trucks or more on the road at a time.
4. Consider a Third-Party Audit
One of the many challenges of supply chain cost management is that internal decision-makers often struggle to recognize unnecessary expenses. They’re so close to the operations that they cannot see where things are going wrong and where room for improvement exists.
In such cases, it’s often money well spent to hire external experts to scrutinize a company’s expenditures and have those professionals make associated recommendations. One business that received a supply chain audit saved $100,000 in a year. Estimates also suggested they could save $205,000 more in the future by sticking to the recommendations.
The auditors suggested changes related to product storage and servicing. Many companies that provide auditing services have high-tech software that helps representatives deploy modeling and make reliable calculations.
Supply chain managers thinking about getting this kind of outside expertise should consider it a long-term investment without hesitating too much about the upfront costs. Engaging in targeted spending on certain things is often necessary to make meaningful expense-reducing gains.
5. Explore Options for Doing Things Differently
Supply chain leaders often resist trying new approaches because they get relatively comfortable with how things are and worry that shaking things up could be detrimental. However, now is the time to at least consider whether there are more economical ways to accomplish supply chain goals.
That might mean engaging with suppliers to inquire about bulk order discounts. It could also involve using different packaging that’s slightly less expensive while still providing appropriate protection.
Many company leaders are also exploring the potential of 3D printing, particularly for helping them manufacture spare parts in-house rather than relying on external suppliers. However, it’s not always easy to determine if 3D printing is more effective than traditional methods for certain products.
An Israeli company called Castor offers a software solution that can answer that all-important question for clients. The tool can analyze an existing digital part file or two-dimensional drawing for its 3D printing suitability.
Follow Best Practices to Get Promising Results
Deploying new strategies can often seem a bit daunting, even to the most experienced supply chain managers. However, the suggestions here are practical and proven, making them good starting points for cost reduction.
Before trying anything new, supply chain managers should choose metrics to track. Monitoring them will make it easier to see if things are going in the right direction or if further tweaks are necessary.
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