Optimizing the supply chain is closely related to improving a company's operating results. Clearly, this improvement can come from either increasing revenue or reducing costs. In previous entries on our blog, we have discussed how analytics technology can increase your company's sales. Therefore, in this article, we will explore the aspect of cost reduction through operational efficiency improvement.
Given that the field of cost optimization is extremely broad, in this article, we will focus the analysis on the supply chain. However, before delving into the study, let's understand what the supply chain is and its importance today.
What does the supply chain encompass?
The supply chain encompasses the set of activities, facilities, and distribution channels necessary to carry out the entire marketing process of a product. This includes sourcing raw materials, subsequent transformation, manufacturing, transportation, and finally, delivery to the end consumer. Thus, it is a cross-functional element in the company's various activities involving different organizations, including suppliers and customers.
Supply Chain Management (SCM) is becoming increasingly important within organizations as the business context becomes more immediate and dynamic. As we progress towards a more complex and global market, the number of actors that companies have to deal with increases, as does the pressure on profits. Therefore, it is crucial for companies to optimize operational efficiency throughout the supply chain in order to preserve their operating margin.
Next, we will discuss five specific measures for optimizing the supply chain that can significantly reduce costs for your company:
1. Consolidated Shipments
One way to reduce costs in the supply chain is to optimize the use of the space paid for transportation. This applies to both transportation to the end consumer and the procurement of raw materials from suppliers. Therefore, it is advisable to plan these transportation needs for the short, medium, and long term to reduce the number of shipments and optimize capacity utilization. Since the volume of cargo may sometimes be less than the total capacity, it is necessary to study the feasibility of combining shipments from multiple suppliers and to explore the possibility of agreements with other companies that require shipments from the same origin to the same destination. This approach can lead to lower transportation costs, increased security for goods, and improved delivery times.
2. Minimize Transportation Damages
Avoiding damages to goods during transportation is a key factor in minimizing costs in the supply chain. While consolidated shipments provide greater security in this regard, proper packaging is essential. Additionally, risks should be carefully assessed to determine if insuring goods can be a cost-effective strategy.
3. Use a Single Platform for SCM
It is common to find companies that use different platforms for purchasing, manufacturing, and sales management. This poses a significant risk in terms of information gaps. By unifying all the IT needs of supply chain management, potential duplications that reduce operational efficiency and increase costs can be avoided, while enhancing the experience for our customers.
4. Control Stock Levels
Stock levels are a key factor in operational efficiency. Excess inventory implies higher maintenance and storage costs, as well as an opportunity cost in terms of available resources. On the other hand, maintaining low stock levels increases the risk of stockouts, which can sometimes result in the inability to deliver products to customers, leading to lost sales. Therefore, striking a balance in stock levels is crucial to minimize costs and risks. A key tool for determining the optimal stock level is demand planning, which can be addressed using sales forecasting software.
5. Space Optimization
As mentioned earlier, the increasing complexity of the business environment leads to more actors in the supply chain and consequently, higher logistics demands. Optimizing the space used for transportation and storage of goods can result in significant cost savings. For example, depending on the seasonality of demand for our products, it may be cost-effective to have a warehouse with limited capacity and rent additional space to cover increased storage needs during peak demand periods. Once again, demand analysis and planning are essential tools for achieving cost optimization in the supply chain.
In addition to the above points, operational efficiency in Supply Chain Management can create an additional avenue for increasing business profitability. A holistic management of the supply chain leads to a new type of competition in the global market, where it is no longer company against company but rather supply chain against supply chain.
The modern vision of the supply chain eliminates the outdated concept of the company as an individual agent in the market with conflicting interests with its suppliers, competitors, and customers. With this new understanding of the supply chain, a win-win situation is created for all links. This results in better-planned global production and distribution, leading to cost reductions and offering a more attractive end product to consumers, ultimately generating better sales and overall results for the companies involved.