Biggest Supply Chain Expenses That Are Not Needed

Unnecessary supply chain expenses are large corporations’ Achilles' heel


The supply chain is dynamic and inherently unpredictable.

Unfortunately, poor supply chain management usually results in poor business performance and shrinking profits.

The good news is that with a little knowledge and hard work, supply chain leaders can make their supply chain work more efficiently. How? One of the easiest ways is by reducing your supply costs. In fact, cutting costs is one way your organization can increase profits without increasing sales.

For supply chain professionals who work at large corporations, gaining visibility into the supply chain and controlling costs is the panacea for all corporate ills.

Imagine: Raw materials and finished products are moving smoothly and predictably around the world and arriving at their destinations in the correct quantities and at precisely the right time. Errors are identified and adjustments are made at the source. Suppliers and partners are responding in kind.

This doesn’t have to be a dream. You can keep supply chain expenses down by managing every phase of your supply process. Once you break the chain down into its essential elements, you can see ways to make it work more efficiently.

Supply Chain Expenses Can Have A Serious Impact On Your Organization

The competitiveness of most businesses is highly sensitive to prices and supply chain costs. Supply costs can often outweigh price differences. There is constant pressure to cut these expenses. Without visibility from one end to the other, finding places to cut costs without affecting production is difficult. This leaves supply chain managers cutting costs in areas where there is very little left to cut while spending too much in areas where there is no visibility.

For supply chain managers, these realities are all too familiar. Take redundancy for example. In larger organizations, it is not uncommon to deploy two or more carriers to deliver inventory on the same delivery route. That redundancy leads to higher costs because the company isn’t leveraging savings from using the same carrier.

That’s only one example, but when similar incidents take place throughout the organization, it’s easy to see how unnecessary expenses within the supply chain can hurt the company’s bottom line.

How Supply Chain Partners Can Look For Success Through Optimization

The solution is to optimize your supply chain. Although there are many ways to go about this task, a simple approach is to examine your supply chain and look for inefficiencies. Once you find them, you can improve on the status quo. Here are five areas where you may be able to optimize your supply chain and cut costs.

  • Shipping and handling systems - Third-party logistics, also known as 3PL, refers to any service, like transportation, a warehouse with a, or an entire conveyor systems that maintain your whole supply chain. Digital advancements are having a far-reaching effect on delivery logistics. There are companies that can advise you on ways to cut supply chain costs.
  • Improve space utilization - Storing supplies and inventory in a warehouse will cost you money. A thorough analysis of how you use that storage space, may reveal that you’re paying for too much space. Another possibility is you could be paying more than you should to have personnel search for stored items when a more efficient storage strategy could cut costs by reducing the space you use and the time it takes to find and pull items, resulting in lower rent and payroll costs.
  • Automate manual processes - Your company may be spending money on areas of the supply chain that could be automated. Experts estimate the cost of human error in UK and US businesses is approximately $37 billion. Automating your processes removes the possibility of human error which saves your business money and time as well as improves product quality.
  • Supply chain network design - If you design your supply chain network to minimize product handling, you can keep costs down and increase reliability. This strategic supply chain planning initiative allows you to better align supply chain strategies. It is proven to deliver significant reduction in supply chain costs and improvements in service levels.
  • Performance measurement - Another tactic for cutting costs is to measure strategically important aspects of your supply chain. When you do so, you can manage and improve those areas. In other words, you can do more of what works and less of what doesn’t.

Supply chain costs can have a serious impact on your organization – particularly as it applies to your bottom line. Reducing your supply costs can increase profits and performance.

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