How can you reduce your supply chain costs? Read on to find out more.
Supply Chain costs contribute significantly to your cost of goods sold. Whether you are managing them yourself, or have outsourced the management of your supply chain, it's a really good exercise to understand how it all works. Here's a roadmap you can follow to identify your supply chain and then reduce your costs.
Step 1: Know Your Supply Chain
- Write down all of your inputs to creating your finished good.
- Ask your supplier where they get them from
- Physically draw a map on a whiteboard and identify the mode of transportation to your production facility
- Draw a map from your production facility to your end customer.
- Is there a warehouse between you and the supplier or you and your customer? How many?
- Are there different types of transportation? Capture them all.
Step 2: Understand ALL Your Supply Chain Costs
- Cost each segment of your supply chain
- Get your transportation and warehouse invoices
- Make sure you identify and capture all the accessorial and non-base rate charges - they add up
- On your picture write down the cost per shipment, unit or pound (whatever makes sense to you)
- Find out what percentage of your ingredient / part costs are related to supply chain from your supplier and add that info to your picture
Step 3: Look for ways to eliminate touch points in your supply chain
- Look at where and how you are warehousing and ask yourself "Do we really need to put our product into that building? Can we direct deliver?"
- Look at opportunities to consolidate your shipments and do a "truckload with stop model" vs. a Less-Than-Truck Model". If you have a full truck to Calgary with multiple stops, that's a lot more cost effective than paying LTL rates.
- Any way to give your transportation provider a shipment back from where they came from? E.g. If they are bringing ingredients/parts to you for production, can you give them an outbound shipment of finished goods back toward their home terminal? Giving a truck a "backhaul" or "round trip move" almost always nets a reduction in cost.
- Got any business partners that are buying product from the same place? Share the load with them.
- How much are you paying in accessorial charges? Can you eliminate those costs?
It doesn't take long to get a good idea of where your costs are, and it doesn't have to be complicated. Analysis paralysis can slow you down. Good data is helpful so going to the source (your invoices) gives you the real total costs. Don't base your analysis on the rate provided, there are often other charges that need to be taken into consideration.
The key is to find someone to help you answer these questions, who knows how to analyze your cost structure, and who knows how to redesign your network. Supply Chain Network design solutions require creative outside the box, 'why not' thinking. To learn more about how to assess your supply chain and identify your cost reduction options, contact Corrie Banks at Triskele Logistics today.