The majority of businesses will recognize that a large portion of the sales price of the product will go on to cover the supply chain costs of that good or service. In fact, supply chain costs were shown to comprise around 55% of the total product price. Having such a big influence on the price of the final product, improving supply chain performance will not only help in reducing logistics costs and increase sales but also improve the company’s bottom line. What’s more, profits can be increased without having to actually increase sales, which is particularly important during the COVID-19 crisis, where overall sales have dropped across the board.
Given the highly complex and multi-faced aspect of today’s supply chains, there are plenty of avenues that can be taken in an attempt to save costs. Nevertheless, most of them cannot be taken in isolation, as their impacts and cost reduction benefits need to be considered for the supply chain as a whole. Below are some of these areas that we believe will generate the most benefits.
Maximizing the Available Space
Making the most out of the available warehousing space will end up saving you a lot of money in both the long- and short-term. It should come as no surprise to anyone that inventory and supply storage will come at a cost, be it in terms of rent, utilities, equipment, and/or manpower. The best place to start is to determine whether you are making the best use of the space available in your warehouse, rather than expanding the facility’s actual footprint.
One way to achieve this is by adding taller storage units and investing in the right type of equipment to move your inventory effectively, both vertically and horizontally. This will allow you to make more with what you already have, rather than adding to your expansion costs. On a similar note, consider the type of shelving being used. Storing small items on pallet racks can oftentimes be a waste of space and will make it easier to misplace items. So, instead of using the same racks throughout your entire warehouse, you may want to consider different types of shelving for differently-sized materials and items. This, however, should not come at the cost of standardization. Many leading organizations in the industry streamline their warehousing processes by making use of cross-docking and packing their inventory in standard-sized containers.
Investing in Automation
Automating your warehousing processes in today’s day and age is no longer seen as a luxury but more of a necessity because it can quickly and effectively reduce supply chain costs. Warehouse automation can help save space and consolidate your storage capabilities without increasing the facility’s footprint and costs. It’s also an effective way of increasing productivity and improving inventory accuracy and control, making your overall supply chain more streamlined and organized.
It should go without saying that plenty of businesses turn to automated warehouse systems as a way of saving space. If there is limited space to begin with, scaling vertically – as mentioned above – will only solve part of the problem. By investing in automated lifts and robotic carousels, for instance, you can reduce the required warehouse space by as much as 40%, in some cases. To use these technologies, you will also need to implement a warehouse management system (WMS). A WMS is used to take complete digital control over your inventory, allowing your logistics teams to track goods throughout the warehouse and the supply chain.
In addition, since goods will be picked up error-free each time, there will be less time wasted on replacements and reorders, as well as fewer inventory checks. All in all, having an automated system will help you reduce your logistics and supply chain costs. The use of smaller and more tightly packed racking systems will increase operational efficiency and lower product handling wastage. Labor costs can also be lessened with the use of automation by reducing staff overhead and the training costs involved. It’s also important to keep in mind that automation will require less time spent counting stock and inventory control. As such, your logistics teams can spend more of their time on other parts of the supply chain.
Optimizing the Ordering Process
The simple act of accepting an order can be surprisingly expensive for most organizations. We need to take into account things such as issuing and managing invoices, responding to customer questions and complaints, organizing deliveries, and checking the progress of delivery times, all of which will add to the overall cost of the operation. Some of the most common costs of transactions stem from the overly complicated process and poor information sharing between partners and departments.
To counteract this problem, it’s best to make your ordering process as efficient and streamlined as possible. For starters, you could try using a single software platform that will handle and complete requisitions. If your employees use a different application, they can order too many inventory and logistics supplies without actually having to do so. You should also consider implementing an approval process to avoid unnecessary orders without the consent of designated warehouse managers or other warehouse operators.
Monitoring Customer Demand
Another way of reducing supply chain cost is by checking your customer demand pattern to see if changes need to be made. It’s not uncommon for businesses to operate on outdated demand patterns, which inhibits their ability to make more accurate and effective supply chain decisions. It’s a very cost-effective option to regularly evaluate your customer demand and determine whether your seasonal or even monthly assumptions remain relevant.
You should adjust your supply ordering based on your most recent evaluations and order your supplies based on your immediate needs. It is a good idea to keep a redundancy stock readily available, just in case your assessments don’t pan out, but you should never stock up on demand that has a very low chance of materializing.
If you need help with optimizing your supply chain operation and logistics planning, logistics and supply chain leader Redbird Logistic Services is a third-party logistics and supply chain solutions partner that can help you become more efficient and productive, while also lowering your overall warehouse costs. Contact us today for supply chain secrets that will help you reduce the costs that are keeping you from scaling!