Kevin Ian Schmidt

The Seven Biggest Opportunities for Cost Savings in a Supply Chain

Within supply chains there are areas that some would call the “seven deadly sins” (according to quite a few articles I have read), but I would prefer to see these as cost saving and improvement opportunities that would make a supply chain more competitive. They are in short the ability to reduce overproduction, the ability to eliminate delays or waiting times, the ability to cut out any form of unnecessary transportation, the ability to reduce any kind of motion that people engage in that is unnecessary, the ability to reduce inventory, the ability to optimize the use of space and the ability to minimize the corrections needed or returns handled.
Overproduction of items in the hopes of getting an order to satisfy production efficiency is a thing of the past. Suppliers now form part of a supply chain and can plan their production runs more efficiently. Their customers will of course dictate when, where and how much of each item will be necessary and this means that sometimes suppliers will have to decide whether they will have to hold some stock or if they are willing and able to produce merely on demand. There is a trade off here, but this can work out to the supplier’s advantage if the customer is happy to help shoulder some of the costs if that is viable. The supplier cannot just deliver goods early anymore as this leads to increased cost to the entire chain when goods are returned or have to be stored somewhere. Also manufacturers learn not to order too much in order to satisfy some safety stock level based on various factors up- or downstream in the supply channel. since information is shared by all, it is easy to identify that no more of a certain item is needed when the supplier has a production run tomorrow and there is already enough in safety stock at the central hub. Any emergencies could be handled by re-routing some of the product should it come to that. All in all though, having access to production schedules helps the manufacturer to plan it’s production and distribution based on real needs better.

Delays or waiting times are those times when warehousing does not know that distribution has a cut off time and does not adhere to it, or a sales person only puts in an order after the cut off time for production for next week. In the first case there is a delay of 1 day and in the second case it could be as much as 7 days. With the flow of information inherent to the supply chain, this is minimized as staff now know and can see the cut off times in the various systems and can work together to minimize those delays. Partners will often make allowances for each other in the case of an emergency as well, should this arise. The cost savings on this alone is substantial.

Unnecessary transportation has cost many companies a lot of money, and especially now with the price of crude oil completely out of control, this is the one of the two aspects of business most scrutinized for cost savings. Unnecessary transportation may be out of route stops, placing fast moving products at the back of a warehouse, overnight deliveries for goods that were late and could have gone at reduced transport rates had they been on time. Deliveries to the wrong warehouse, excess stock at warehouses all contribute to this really costing a lot of money. With increased information sharing and increased monitoring of all partners’ efficiency , there could be some real savings here for the entire supply chain. It could also help a supplier become a preferred vendor if they consistently outperform the other suppliers.

Partners in the supply chain can also reduce unnecessary motion by staff – meaning that warehouses could be rearranged to improve picking and packing efficiency, that activities could be combined in one production line where possible. That distribution areas could be more efficiently laid out in order to eliminate doubling on routes to load a truck for example. All partners in the chain have a vested interest in ensuring that these activities are performed optimally and the opportunity is to educate and to help all partners set up shop in the most efficient way.

Inventory has already been mentioned. It is the number one concern for supply chain and logistics professionals. Several steps that could be taken to reduce inventory has already been discussed in this article. In short though all partners in the chain must ensure that they are not a bottle neck forcing others to stock up on product that is ultimately a waste of space and a high cost for all involved.

Utilizing space properly , if it be in a truck or in a container, is vital. Considerable savings have been realized as companies have become more savvy to space restrictions and other factors that could help save costs. Using uniform sized pallets and packing patterns could help reduce the need for adjustments to facilities such as the need for additional loading dock doors or more warehouse space. Also, one size pallet might only fit one in a row in a truck while another could fit two. With the price of gas so high, utilizing that space more efficiently would be a big saver. Also negotiating only a certain percentage of truck or container space and then having the transporter sell the additional percentage off while you get the benefit of not having to pay for entire truck loads, is a way of handling this. Also, packing can and should be done as efficiently as possible. If cartons are not filled properly train staff to do so more efficiently. If the cartons are too big, then change the specs with your packaging supplier. You can realize savings this way too.

The last one is the reduction of corrections or returns. Returns are a very costly business and increased quality control can turn this nightmare into an opportunity to be a market leader in zero returns or less than one percent returns. Information is shared and partners can cross pollinate each other with information and assistance where problems seem to be a regular occurrence.

There are a myriad of opportunities. Those astute enough can employ techniques to cut all the wasteful practices and emerge as market leaders. It takes conscientious monitoring and management of your supply chain though.

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