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How to keep supply chain costs at a minimum while still delivering the level of service your customers expect is the never-ending trade-off of logistics management. This challenge has only grown more daunting in recent years, as supply chains have become more complex and dispersed and mega-companies such as Amazon have redefined customer expectations — primarily around the speed and cost of delivery.

Doing more with less has become the order of the day. Luckily, there are a few straightforward strategies that can help you maintain a sensible balance. 

Here are four key areas to focus on when trying to reduce your supply chain costs.

Automation

As overused as the word has become, automation is far from a fad. It’s a vital component to remaining competitive in the modern world of supply chain management. And US companies are shelling out staggering amounts of money to overhaul their operations — spending close to a billion dollars in the first six months of 2019 alone.

Warehouse automation technology like automated storage and retrieval systems, modular shelving systems, and warehouse robotics enable your business to achieve more significant outcomes with substantially less time and effort. Ongoing advancements in artificial intelligence (AI and the Internet of Things) continue to provide new and better ways to optimize your operation — which is why more and more companies are adopting them as the complexity of working in today’s market continues to rise. 

 

Access to this type of automation software can be one of the more significant benefits of working with a 3PL provider. It can be helpful to have a third party assess your operations to identify ways automation can make your process more efficient.

Inventory Management

A finely-tuned inventory management strategy is another vital component in reducing supply chain costs. Mistakes as varied as incorrect stock picks, tracking errors, or under- and over-stocking can dramatically impact your profits. Without a clear plan in place for each aspect of inventory handling, it’s hard to identify inefficiencies or potential cost savings. 

Once considered something of an outlier approach, Just-In-Time (JIT) inventory management has become a widespread and successful strategy for many businesses. At its heart, JIT is a system of lean practices that links production directly to customer demand — manufacturing only occurs in response to customer orders. On the sales front, JIT means only ordering a product in response to a customer’s purchase — not keeping inventory on hand. The result is more manageable inventory levels, lower costs, and more efficient practices. While it’s not suitable for every type of product, JIT reduces overhead while eliminating floating inventory — goods that become damaged, go obsolete, expire, or otherwise need to be replaced due to never being sold. By removing these forms of waste, JIT can make a substantial impact on your supply chain costs.

Warehousing

Between the cost of rent, warehouse management systems, and administrative expenses, warehousing represents a significant percentage of most companies’ logistics budgets. And while there’s relatively little you can do about your space’s square footage cost, paying proper attention to your warehouse technology can pay significant dividends.

Technology upgrades represent a sizeable investment for most companies. But it’s an investment that pays dividends. As of March 2018, the annual labor expenses for a warehouse with 100 employees were at least $3.7 million. Proper warehouse management can reduce these costs, improving efficiency, streamlining processes, and reducing labor expenditures.

Your use of IT — such as utilizing RFID technology for inventory tracking — can significantly influence your ability to remain profitable. Staying up-to-date on the latest technological advances in shipment tracking interfaces, maintaining an awareness of logistics analytics tools, and implementing tools like IoT devices or warehouse layout analytics can lead to more significant supply chain savings.

Packaging

United States manufacturers accounted for over $2.3 billion worth of goods in 2018, most of which were transported in some form of packaging. It’s a crucial aspect of the logistics process, yet it’s one of the most commonly overlooked when reducing supply chain costs.

For any company seeking more cost-effective operations, several questions need to be addressed. For instance, are you making the most of the space in your packaging, or are you relying on fillers? The most effective packaging is packaging that will provide a snug, protective fit for your products while keeping costs controllable. Also, how much of your packaging are you discarding? How much of your packaging is the end-user discarding? Packaging lifecycle is a crucial aspect to consider. If you’re paying for packaging that has a short lifecycle, you’re wasting money.

Overall

There are several ways you can reduce your overall supply chain costs. Many are as simple as the four we’ve outlined above. Job one is deciding to do it and making sure all stakeholders are on board.

That’s often the most challenging part. Evaluating your existing process can be daunting. But the potential savings far outweigh the time spent on the process. It can be helpful to work with a partner with experience in every aspect of the logistics pipeline. At Gorgo Logistics, we’re experts at helping clients streamline their operations. If you’d like help exploring ways your company can reduce your supply chain costs, contact our highly experienced team today.

We’re here to help you find the right solutions for your business.