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What Are Supply Chain Costs? (and 4 Ways to Reduce Them.)

June 1, 20180Supply Chain

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What Are Supply Chain Costs? (and 4 Ways to Reduce Them.)

June 1, 2018 0Supply Chain

This is a conversation inherent when dealing with Supply Chain Management. Almost every conversation we have internally and with our clients is how to find a more efficient way of moving goods and products through the supply chain. After all, can you imagine your business reaching its clients or the raw materials reaching to you without a supply chain application? This is one of those scenarios where ignorance is not bliss.

There many costs involved in supply chain functions. They can go overboard and disarray your capital investment if you do not monitor and curb these expenses. Moreover, any negligence can also lead to huge irreparable damage. These broad costs involved in supply chain management include:

  1. ORDER PROCUREMENT COST: This involves the costs involved in sourcing activities like acquiring goods & services, negotiation, competitive bidding, tendering to obtain the work, etc.
  2. TRANSPORTATION COST: Different modes of transport can have different expenses as well as different lead time. Sometimes a faster delivery method may be expensive compared to a normal delivery but it can save you money by decreasing your inventory cost
  3. INVENTORY COST: Holding your inventory costs you money. This includes the rent you pay for the place, the insurance you pay for the safety of the inventory against accidental damage, the interest rate of banks if you have a taken loan to manage inventory costs, etc.
  4. ADMINISTRATION COST: This involves all related expenses incurred in carrying out your supply chain activities ranging from manpower to meeting quality standards.

A strategical approach as listed below can reduce your supply chain costs to a great deal:

  1. OPTIMIZE: Buy in bulk over a longer period to minimize procurement expenses. Minimize stock holding time and switch to multi-modal transport for products to cut down on inventory and transportation costs.
  2. AUTOMATE: Digitalise the process to minimize errors and save time on inventory management and tracking. This also minimizes the manpower costs involved in data management and supervision.
  3. MONITOR & MEASURE: Monitor and measure the performance of your existing operations. Regular monitoring of your systems allows you to identify areas where costs can be minimized and also helps you to avert process breakdowns.
  4. OUTSOURCE: Some part of your supply chain operations can be outsourced to service providers. Warehousing and transportation are the most common functions that are outsourced. These reduce the recurring costs of paying rent of the warehouse and cost of maintenance of the transport vehicles. Besides reducing the cost, it also provides specialised expertise and competence in these areas of operations.

You can reduce the myriad supply chain costs by optimizing your operations and by conducting regular monitoring checks to ensure that your activities are properly streamlined. Keep yourself abreast with the market trends, new developing technologies in the field of supply chain management and utilize best practices wherever possible. An efficient delivery is the best after sales service that you can provide to your clients.

Every business is unique and has its own specific ways to apply these tactics. We would love the opportunity to dive deep into how your company can improve its supply chain and assist in creating a value chain.


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