4 Tips for Cost-Effective Supply Chain Management

By Shipware April 28, 2020 eCommerce

In the light of current events, supply chain management has received more attention to its use than at any time in its life. From stockouts of products at the store to the impact of isolation measures on manufacturing, understanding supply chain management and its uses is more important than ever. But how do you do this in a manner that controls your costs, not just your capacities? For starters, seeking out shipping consulting can help just about any business get a better understanding of their supply chain’s transportation costs. But, here are also a few top tips to help you improve your overall supply chain strategy.

1.  Know where your money goes OR know your numbers

The first tip has several nuances. At first pass, it means knowing how your budget is being spent and why. In the past, a supply plan was determined in a company. Focusing mostly on storing inbound goods in local warehouses, it controlled costs by bulk buying and whittling the over purchase down over time.  The new world of supply chain management does not use this process. Instead of stockpiles, the focus is now to provide a global conveyor of goods at just the right time, in just the right amount, in just the right locations. This means that most of the activity a purchasing group makes is in motion, not static. So the question of numbers is not just on the items themselves and their costs, but also the method of transport. And when change happens, there are costs that are accepted as “part of doing business”.   

Take, for instance, the practice of air shipping late shipments to meet a customer’s needs.  How often do you have to air ship products to meet order demands?  How often does that expedited product not get used or only partially used? And most importantly in this situation, why did it happen?  

Knowing your costs and which ones were necessary allows you to make changes where needed. For example, if you’re trying to understand how your transportation costs play into the supply chain, consider a parcel audit of your shipping invoice with Shipware. A thorough audit of your shipping charges allows you to understand which costs were “part of doing business” and which ones may have been errors.

Analyze possible departures of the plan

Knowing your numbers means not only analyzing the plan, but also the departures from the plan. The stance in the past has been to look for the lowest cost option for both sourcing and shipping the goods to your facilities. But the issue is that when an “excursion” from that plan occurs, you need to know all of the implications. The extra labor to find enough product to airship, the cost of the shipment, and even the impact on the cost of the remaining balance can all add up, but take weeks or months to finally hit the books.

Know the true cost of your supply chain

There is a deeper level of knowing the cash flow, though, that is only now being considered valuable. Do you know where your supplier’s money is going to fulfill your order? This is vital to know for emergencies, and for understanding the true cost of getting your needs met.

This is not an easy area to research. Between privileged business information, confidentiality clauses in contracts, and the use of spot markets for some aspects, it can be difficult to understand how your supplier does business. Add in cultural differences and corporate accounting methods, and it gets more complicated. So why bother?

Understand what costs can be controlled

The value is understanding what the fixed and variable parts of your purchases can be controlled, and to what level. For the most valuable SKUS in your catalog, it can help you understand the impact of industry news items but also help you understand the abilities of your supply chain partners to meet your needs. And in the long term, knowing more about your supply chain can help you minimize fulfillment costs and increase profit margins for e-commerce. 

2.  Know your friends

That raises the second tip. Know what your “friends” can do, what they can’t do, and what limits they have on their abilities. Again, in the past, you merely ordered what you needed from an agent that said “No problem, we can do that”. You waited until the order was ready, and you (or they) arranged the delivery of the items to your facility. But how did they “get the job done”?  

The new reality is that how they sourced your order is almost as important to you as the cost.  Ethical manufacturing or sourcing requires you to know if they outsourced the order to any degree. It is often much easier to tell a supplier your requirements and let them figure it out than it is to establish controls on who they use, or can’t use to finish fulfillment. And knowing how much, how often and how quickly tells you about their ability to do the work themselves.  

Most of your suppliers will have their own suppliers in turn for parts, machining, even labor.  The lag between your order and the ability for those sub-suppliers to react is often key for making intelligent plans for the rapidly changing consumer world. Ecommerce and topical sales often require quick responses that push the entire supply chain to respond. It might be possible to do this once or for a short period. Asking sub-suppliers to keep to those rapid tempos, however, is going to cost you (if they can even keep up).

So that means you have to know how far your current supplier can go to deliver on your needs.  Not just the contractual ones, but the ones you give them over the phone when your sales department overcommits. Or you have a disaster and inventory is covered in fire suppression foam. Or your entire worksite is shut down. If they can’t meet those needs or you have limits they want to cross to do the work, you need to know what else can be done. Even when you barely know what is coming next.

3.  Know your options

Medical responses for disasters are often obtained from nearby, non-local sources. A large forest fire will put pressure on one area and the fire response teams from other areas respond.  A medical crisis will have supplies shipped or flown into the affected region. This response is built into the planning of every emergency response manager. The basis for this is knowing the options.  

Your suppliers have limits. And you have pressures to adapt your supply chain, either to change or to emergent crises. Knowing what your supplier can handle is a start, but the next issue that comes up is how to fill the gap between what you need. You have to start your strategic planning by analyzing what options exist. Is there a local supplier who may have stock on hand? How about a foreign supplier who is willing to discuss an immediate shipment? Are there alternate airports or ports that can route smaller shipments or containers around an affected region? And can these new supplier-route combinations be cost-effective for more than a single-use? All of these questions should be considered in your decision-making process

You have to know what the options are to be able to adapt. Learning about other suppliers, different shipping options, and the abilities of both is something that can be done before you need them. Like the planning for emergencies, the researching of options needs to be done before you need them, not in the middle of the need. If you need more motivation to research other suppliers, remind yourself that having an abundance of market information is not just convenient in a crisis, but it’s also an excellent cost reduction strategy that can save you thousands of dollars that would have been lost to supply chain downtime.

3.  Walk the balance beam

The final tip is that supply chain management is a balance beam. You will never get the perfect amount at the right time in the right place. Too many factors like weather, labor issues, delays or changes in shipping, or even supply quality can make you miss that target. You have to plan for a little safety stock, held strategically in the system, and heavy amounts of communication to understand changing priorities to help. Maintaining a balance between working the plan and adapting the plan is key to cost effective supply chain management. Every business wants to save on e-commerce shipping costs, and the new world of supply chain management is constantly trying to find ways to remove ambiguity, time and cost from the system. But no one can see the future. You must walk the balance beam of lean and still recognize the need for flexibility.

Conclusion

These 4 tips should help you to approach and implement cost effective supply chain management in a more mentally organized way. It is more than just making demands and pushing suppliers to be ever more adaptable. It is knowing your business, understanding the capabilities of each link in the chain, planning and then managing the flow as needed for efficiency. Businesses in all industries rely on efficient supply chain processes– and whether their main goal is cost reduction, increased customer satisfaction, or faster order fulfillment, taking the time to analyze your operations data and understand your supply chain partners always pays off. The better you have of the ins and outs of your supply chain, the less surprised by cost, change or demand you will be. And that makes your efforts cost effective.

Shipware

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