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5 Ways to Reduce Your Supply Chain Costs
August 12th, 2020
In the era of globalization, the internet, and e-commerce, we're seeing some major changes in buying patterns and consumer expectations. We're now able to shop anywhere, buy anywhere, deliver anywhere, and, in some cases, return anywhere. Products have shorter life cycles, and markets are changing fast. These quickly changing demands bring about new complexities that call for enhanced supply chain performance all while keeping supply chain costs as low as possible.
Here are 5 ways you can reduce your supply chain costs:
1. Develop a Strong Supply Chain Strategy
Here are some important factors to consider when defining your strategy:
- Identify the cost drivers in your supply chain by performing a supply chain costs breakdown—you may find that it’s time or transactions; maybe it's errors, personnel, specializations, or something else
- Analyze the needs and requirements of your customers, partners, and suppliers, and make sure you're compliant with their specifications so that you can work towards strategic cost management in your supply chain
- Set objectives that will help you to reduce supply chain costs over time—cost reduction strategies typically include defining supply chain KPIs and analyzing performance metrics to achieve a lean and agile supply chain
- With those metrics, don't forget about demand forecasting in your supply chain so that you can adjust your strategy accordingly
- Decide which supply chain and logistics processes need to be tweaked and optimized for optimal performance—carefully analyzing your supply chain performance enables you to adopt savvy cost reduction techniques, and ultimately lower the overall cost of your supply chain
- Make sure your supply chain strategy is properly documented and accessible to all individuals involved rather than just management or C-Level—by working together you can better analyze key performance indicators for efficient supply chain management
2. Get Rid of Paper and Ditch Manual Processes
Did you know that nearly 80% of transactions are still carried out on paper and manually entered into an ERP or other existing system? In addition, 50% of companies still print their documents for archiving purposes. This can cause inconsistencies and discrepancies at all levels, in all departments (finance, sales, operations, logistics), and with all documents types (invoices, payments, purchase orders, delivery notes, etc.). The only way to avoid this is to implement an automation solution for document exchange.
Truth is, all that manual work is expensive, especially if you have a high volume of documents flowing in and out of your business daily. In that case, it requires a large workforce to manually hand-key data from paper, or a PDF, for example, into your existing ERP or other back-office system. And if your business is growing, manual processing isn’t a scalable solution—unless it’s part of your supply chain strategy to recruit more employees for this task. What we’re trying to say is this: Manual processing has no place in your supply chain if cost reduction is what you’re after. It’s absolutely critical to evaluate automation solutions if you want to simplify back-office processes, increase your business’s productivity and growth, and, ultimately, obtain a lean and agile supply chain.
3. Eliminate Errors with Automation
Speaking of automation, once you’ve implemented the right solution for your business, you’ll notice that you encounter fewer errors. That’s because documents exchanged with customers and suppliers (very) often contain inaccurate data due to manual entry mistakes. The chargebacks and internal repercussions of these errors can really add up, especially if you have a high volume of incoming and outgoing data.
In order to avoid errors, delays, and chargebacks, it's important to validate all data contained in a document and, if an error is found, return the document to the sender before it’s too late. If you look at a breakdown of your supply chain costs pre- and post-automation, you’ll notice that by eliminating human errors, you’re able to significantly reduce supply chain costs.
4. Consider Migrating to SaaS
The debate on whether to outsource or not is a never-ending story. Many businesses still fear outsourcing their EDI even though it can be a seriously effective way to reduce supply chain costs. But there’s no doubt that outsourcing your EDI operations can, at the very least, reduce IT costs (think: hardware and software investments, maintenance updates, external consulting, mapping).
It’s important to remember this when you’re attempting to lower the total cost of ownership of your supply chain. You should also remember that savings can be upwards of 50% when you migrate from an on-premise, in-house solution to an outsourced SaaS solution. This is one supply chain cost reduction technique that’s gaining popularity—and for a good reason. Don’t be afraid to outsource, just be sure that you choose a provider you can trust.
5. Adopt an Integrated Supply Chain Model
Lack of supply chain integration always means that you could be doing things more efficiently. Through supply chain integration, or connecting your internal system(s) with your business partners’ ERP, WMS, or any other system, you’ll immediately recognize increased supply chain performance and reduced costs.
You’ll not only reduce operating expenses and eliminate inaccurate data, but you’ll also increase collaboration and compliance with your customers and suppliers. In that sense, we can’t emphasize the importance of supply chain integration enough—it has a direct impact on your value chain. Even more, the more you integrate, the more you save. But sure to consider a flexible integration solution for your business, meaning one that can adapt to your needs at any given time. If you do that, adopting an integrated supply chain model is sure to help you reduce costs in your supply chain.
This post was written by Chiara Carnevali, Marketing Manager, North America
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