Cost Reduction

 

Demand and supply are the key drivers in procurement and supply chain. The relationship between the quantity of commodity manufacturers supply and consumers wish to buy has resulted in a vast array of strategies that have been implemented over several years to make cost reduction possible. The implementation of effective cost reduction strategies is not acquired freely, and they indulge costs. ‘Cost Reduction – Strategies for successful Supply Chain’ reveals various ways how cost reduction can be applied to the supply chain.

Cost management remains the top priority for CPO’s, as market uncertainty grips the worldwide economy. Market uncertainty is very often a result of instability in politics, the disparity between demand and supply, scarcity of resources, business risks and competitive threats, just to name a few. Therefore, running a business sounds like a perfect idea but how prepared are you to bear the costs in creating your business and growing it as a firm?

 

 

 “79% of Chief Procurement Officers made Cost Reduction their top priority.”

The Deloitte Global Chief Procurement Survey 2017

 

 

Three fundamental areas to address in Supply Chain

Before moving to the core strategies to adopt in Supply Chain, it is recommended to carry out a basic fundamental check in your current supply chain plan. This verification will certainly address some of the reasons as to why you may need to adjust and change your present supply chain strategies. The verifications are as follows:

Cost incurred for each transaction

The overall cost of one single supply chain process could turn out to be costly. From placing an order to organizing deliveries, all costs borne during this process can have a detrimental effect on your end of month ROI. Keeping track of costs is a usual process but estimating the cost of each process can often demonstrate the inefficiencies in your process. They can frequently escape your attention. A combination of all these factors, combined with a lack of communication and poor information sharing contribute to complicated procedures.

Supply Chain capabilities

As mentioned above, one single supply chain process can involve several steps. A simple confusion between operational processes could also result in a duplication of tasks. Duplication of tasks consequently adds up to your monthly costs. The use of technologies is beneficial, but a proper understanding of the process is essential. Planning at every stage is crucial, that is why many purchasers and suppliers are collaborating further to implement project forecasting.

Discrepancy in inventory

Letting your stock pile on could have adverse effects on your profits. If manufacturers have doubts on their current orders, suppliers will also face doubts on whether manufacturers will be able to meet their demands. From stocking raw materials to an entire stock of finished goods, you can be sure that the balance of your demand and supply strategy will be interrupted. Another important factor to retain is that holding inventory will cost you more money and block your working capital and prevents possible income you could generate from it. Your entire profit margin is in question here.

 

“Automation and robots will decrease the need for warehouse workers. 15% of warehouse executives said that procuring autonomous mobile robots in the next three years will be their priority.”

Steve Banker 2017: Forbes

Retrieved from: Supply Chain Trends to follow in 2017

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6 Key areas to curb costs in Supply Chain:

Smart Management for labor force

Through smart management, you can address the problem of lack of communication and poor information. Improve your communication strategies to remove any barriers hindering any means of conversation. It is an opportunity for your staff to get to know each other better and know their strengths and evaluation. A better evaluation of this situation will lead to an improved forecasting and work flow.

Inventory Management

Get your inventory strategy right, and everything that follows will turn out to be correct. Inventory tracking technologies are now available for a sound management of your stocked products and supplies. Mistakes are inevitable, but a failure analysis is possible through the new technologies. Generate a clear plan for every process and do not let your stock become obsolete.

Warehouse

The rapid fluctuation of the use of technologies in the supply chain is urging many warehouse executives to probably dive into the pool of these advanced solutions available in the next three years. Autonomous mobile robots may very well replace human workforce in the coming years. Certainly, this is a strategy they may need to adopt which also signals the reduction of human workforce and costs related to it.

Optimize Third party interference

Very often, the interference of third party elements in a supply chain process engenders additional costs. It is understood that not all aspects of your business are maintained in-house. Therefore third parties are inevitable. However, all you could do is review when and where you need this service. Localize your customers, use this service only when needed and not just to complete an action, even if it’s not required.

Devise an operations and supply chain strategy

Ward off the inefficiencies in your business by creating a more efficient workflow. A sound operation and supply chain strategy will benefit you and your company. Start an investigation from the beginning to the end of any process, and you will immediately know where the loophole lies. It’s not about verifying every process and not trusting the bottom line; it’s about working with them to enhance your way of working and theirs.

Review transportation costs

If you look at the example set by many dairy farm producers and suppliers in New Zealand, you will immediately be impressed by their transportation service. They have devised strategies to supply their dairy products safely through large trucks and mega trains, depending on their requirements. Looking at your transport costs could save you a lot of money.

 

Conclusion

Cost reduction is the main target of procurement and supply chain chief officers in 2017. There is no doubt on the instabilities that we elaborated earlier on in this article, but we also looked at some reasons leading to mismanagement in the supply chain. The six ways to curbing costs in supply chain seem to be reasonable enough, and if you have not yet implemented them, then this could be your starting point. Devise such a strategy that will facilitate your cost cutting plan, following which your profits will soar.

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