Hidden Costs Within Your Supply Chain

By Mackenzie Oakley | December 23, 2021

Working out a supply chain strategy is like doing a complex puzzle with hundreds or thousands of pieces. You might spend weeks fitting the parts together and still feel like you have only half of the picture. While you’re sorting through hundreds of contracts with suppliers, customers, factories, and transportation companies, it’s easy to miss out on some significant cost-saving measures.

From our experience working with CEOs across industries, we’ve found that even business leaders who’ve meticulously mapped their supply chains are often missing some crucial details.

Hidden costs within your supply chain and where to find them

Here are four key areas to examine to find savings and reduce costs within your existing supply chain.

1. Don’t make assumptions about customers’ desires

It’s dangerous to assume you know what the customer wants without asking. Take shipping options, for example. Many businesses offer “free” same-day or two-day shipping, when in all actuality, those additional costs are already built into the price of the item. Furthermore, not every customer needs his or her order delivered tomorrow. If you were to ask, many of these customers might be likely to opt for longer shipping timelines if it meant reduced prices.

FedEx, UPS, and the U.S. Postal Service all approach shipping in a similar way: customers who want high-octane shipping can pay for it, but others don’t have to.

As you review your supply chain strategy, start with what you know about your customer. If there are any questions about what the customer wants – and what they’re willing to pay for – ask the marketing department to survey customers, or design a focus group to get customer feedback. The savviest supply chain managers know there’s no point in spending money on a service that the end customer doesn’t want.

2. Minimize “checkpoints”

Walmart is widely accepted as be the king of cutting supply chain costs. By decreasing the number of links in its supply chain, the retail giant has been able to pass its savings on to customers.

With an ingenious initiative called vendor-managed inventory, Walmart made vendors responsible for managing their own products in Walmart warehouses. Knowing the alternative is to lose a contract with Walmart, the vendors have obliged and Walmart has essentially absolved itself of the warehouse management link in its own supply chain. This method has also boosted order fulfillment to nearly 100 percent.

Revisit all of the checkpoints in your supply journey, and add up the costs related to each one. Think about facility costs, inventory management expenses, and transportation both to and from each location. To lower expenses, seek to consolidate links wherever possible.

The more people and places needed to manage your stock, the greater the price tag. Simplifying your network will mean less delivery faux pas and lower costs.

3. Watch for bottlenecks

As you review how shipments move between each link in your supply chain, it’s important to identify where the stock is moving too slowly. Remember, one bottleneck means every shipment at that link is slowed down. Not only does this slow that step down, but it can also increase personnel costs and cause ripple effects at later stages of your supply chain.

One option to consider is outsourcing as some supply needs are best met by a third party. If limited temperature-controlled transport, a cumbersome packing process, or time-consuming deliveries are the issue, consider contracting with a third-party provider.

Look to a company that is entirely built around the service hindering your supply chain — like providing temperature-controlled or hazardous material trucking — for a cheaper and more efficient option.

4. Keep an eye on printing costs

From attaching important transport details to shipments to printing shipping labels, every business with a supply chain faces printing costs.

If you’re printing everything in-house, take a closer look at how much printing truly costs. Don’t just think about paper and ink, either. Consider the time your team spends printing and collating materials. And remember, printers and copiers have maintenance and energy costs. Depending on your situation, it’s possible you could save up to 30 percent by outsourcing your organization’s printing costs.

The bottom line for your bottom line

Unfortunately, supply chains are something many of us don’t think about until an issue presents itself as lost packages, dissatisfied customers, or bloated costs tend to get our attention. But when thousands of products per day pass through your supply chain, it’s important to take a proactive look at what your company’s supply chain is costing you.

Save money, and pass on the savings to customers by sniffing out the hidden costs in your organization’s supply chain today.

Need help with supply chain management and cost reduction? Contact Una to learn more about the power of group purchasing. 

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