If you’re looking to cut supply chain logistics costs quickly then you’ve come to the right place!
For many manufacturing businesses, the logistics costs of operating a supply chain are a necessary evil.
But those costs don’t have to be such a burden.
Through careful management of each aspect of the supply chain, a business can eliminate unnecessary expenditure, freeing up cash for reinvestment in the business elsewhere.
But you’re an owner or leader of a manufacturing business.
You’re not a logistics expert.
So uncovering ways to cut supply chain logistics costs quickly can be a daunting prospect, or at best, a major distraction from what you should be doing.
At Servispart Consulting, we work as supply chain management and logistics consultants for manufacturers of engineered parts and equipment and understand each and every aspect of a supply chain in detail.
Our experience has allowed us to uncover many useful ways to slash logistics costs quickly, without compromising business performance or customer service.
If anything, we usually enhance these too.
If you would like to talk to a member of our team regarding your supply chain or logistics, you can request a FREE logistics review today.
Give your customers what they want
Many manufacturers choose to add value in their service when in fact, the customers themselves gain no benefit.
One good example of this is in delivery of a product to a customer.
Some businesses choose to ship manufactured parts directly to their customers and include the cost of the carriage in the price of the item, when their customers would actually prefer an ex-works, factory gate price and collect it themselves.
Other customers may prefer you to ship your products to them, but don’t always require an immediate delivery on the same day.
Sometimes a next-day delivery will suffice.
This mismatch with your customers requirement wastes time and money.
Much better to re-assess your delivery strategy and uncover whether it is in fact adding value to your customer as much as you think it is.
Note that the converse is also true here.
If a customer sees added value in a service and can visualise how it will help them run their own business better, they will be happy to pay for it.
In which case, start to offer it to improve your customer service and charge accordingly to more than cover your extra costs.
Maximise use of available storage space
Poor storage strategy is an area that many manufacturing businesses tolerate for too long.
One example of this is an inefficient storage and retrieval system wasting time and money as additional personnel are required to locate misplaced or lost inventory.
Another example is during growth periods when many manufacturers overestimate inventory growth over several years, and so invest in far too much space than is actually required.
If your business is looking to cut supply chain logistics costs, storage space is one area that you should examine carefully.
Also, develop a process and system to enable easy location and identification of the inventory stored in your warehouse and look into whether you are underutilising the space available.
Alternatively, you may be trying to work with a storage facility that your business has outgrown in an aim to save money, but in most instances, this can actually do more harm than good.
An overloaded facility causes process inefficiencies, longer lead times, increased error rates and more lost items.
Select multiple transport providers
If you use third party transport providers then competition between them can act as a catalyst to saving money and optimising service.
While it may seem like a good idea to place all your deliveries with one supplier to maximise volume discounts, simplify the distribution interface and develop a long-standing relationship with them, it may be more worthwhile selecting several suppliers to compete on price.
Utilising the services of multiple suppliers also ensures that they never get complacent and can provide you with an optimised service in terms of geographic coverage, freight types, delivery modes and standard/premium services.
Automate manual processes
You may be spending a large amount of money on an aspect of your supply chain that could be automated.
The details of this automation depend on the particular aspect of the supply chain and your industry, but with the technological advancements of the past thirty years, many business processes can now be automated using computer systems and associated hardware.
Demand forecasting, inventory planning, warehouse management, transport loading, route planning systems, hand-held scanners, radio frequency tagging, etc. are a few examples of the many you might consider.
Automated processes also remove the possibility of human error, which again can save your business valuable time and cost as well as improving quality.
Did you know that industry experts have estimated the combined cost of human error in UK and US businesses to be around $37 billion.
How much of this total is currently being wasted in your business?
Outsourcing might not save you money
Whilst this can be a very good tactic for many businesses to increase volume flexibility, convert fixed costs into variable costs or access hard to reach geographic locations, it is not a panacea.
So don’t assume it will always save you money.
To save you money, the logistics service provider would need to perform your operations more efficiently than your own business (with your transferred operational staff if that has occurred under TUPE).
They will also be expecting to make a profit margin, so that needs to be financed by the savings too.
It is often forgotten that your business will still need to monitor and manage the outsourced activities, both operationally and commercially.
Which begs the question: if you are spending resources on overlooking the outsourced work, would it not be wiser to bring it ‘in-house’?
If you’ve been outsourcing your logistics for some time, then this might be something to revisit as circumstances and economics will probably have changed.
This isn’t to say that outsourcing is always the wrong route to take.
The key here is to ensure the service specification is accurate and that communication between your manufacturing business and your service provider(s) is clear.
Select your mode of transport wisely
One of the most important and often costly activities of the supply chain is transport.
Consider the mode of transport used in your supply chain and consider if there are cheaper alternatives.
Road, rail or sea freight are obviously less costly than air freight, but have repercussions in terms of process lead times, inventory levels, parts availability, customer service levels and might have contractual penalties too.
It’s therefore important to get multiple quotes for all the viable modes of transport to uncover the best mode of transport for your business.
Different providers use different routes, different transport hubs, different transport sizes, different ports of entry/exit, etc.
Shared networks are often cheaper than dedicated services but not always so consider these too.
Also, don’t just consider outbound delivery to customers either – consider your inbound transport solutions, whether organised and paid directly by your business or your suppliers.
For multi-site manufacturing businesses, consider your inter-site transport too.
Don’t pay twice for the same insurance
All businesses want to ensure the safety of their stock and cover themselves against losses, and rightly so.
That is why many choose to use carrier’s insurance for premium goods, but this is costly and may not be required.
That’s not the worst of it though.
Often, when carriage is included in the cost of the parts from a supplier, you can find your business paying for all kinds of insurance without even being aware of it.
If your business is self-insured, check your policy to see if shipment and storage of goods is already covered to the right level.
If it is, the added expense of the carrier’s or warehouse provider’s insurance is not needed and your procurement staff/buyers need to ensure you’re not paying for it inadvertently in the purchase price of your bought-out parts or your logistics contracts.
In some manufacturing sectors, e.g. aerospace or defence where the cost to weight ratio of parts and equipment is high, this is critical.
The standard insurance of many logistics providers is insufficient to cover the insurance to the level and value required, so make sure in these cases that you cover your insurance needs via your own business and extract the requisite savings from your logistics providers and parts suppliers.
Use your assets wisely
Underutilised vehicle fleets, inventory, or facilities are often extremely costly in business.
By simply adjusting the way your business assets are used, you can save money.
For example, leasing vehicles may provide flexibility benefits but can be a more costly way to operate your fleet than purchasing them.
As another example, if your business is seasonal, you may require more storage space at certain times of year.
But owning more space would mean your storage facility being underutilised at other times of the year.
Owning a smaller facility and renting a facility for those peak months could be a much more cost-effective solution.
Alternatively, outsourcing to a third party provider could provide the flexibility you require.
However, if you go this route, make sure you have a flexible pricing model based on the utilised space of a shared facility so you don’t just end up overpaying for a dedicated facility with profit on top!
How To Cut Supply Chain Logistics Costs Quickly
Need help cutting your logistics costs?
Putting in place regular assessments of your logistical supply chain and its efficiency is the key to maintaining and reducing costs but not every business has the time and specialist resources available to do this.
That’s where we come in.
How Servispart Consulting Can Help
Servispart Consulting offers a number of services designed to help manufacturers of engineered parts and equipment to streamline their supply chain.
Our Fast & Lean Parts Machine Programme helps OEMs and parts manufacturers to identify the root causes of their logistics problems and implement fixes to regain control, restore service excellence and profitability.