It’s a classical trade-off in the world of logistics—the need to keep supply chain costs at a minimum while maintaining the levels of service needed to keep your customers loyal. Sometimes it seems there will be no end to the requirement to do more with less. So how do you keep a sensible balance between minimal supply chain costs and maximum levels of customer service? Here are four tips that might just help a little.
1. Deliver a Consistent Message
First and foremost, it should be understood by everyone in your organisation that any saving in supply chain costs is a step in the right direction. Of course it makes sense to look for large-scale savings, but it’s equally important to remember the old English Adage; look after the pennies and the pounds will look after themselves. Make sure your company leaders deliver this message frequently and consistently. The aim is to keep all employees mindful of the need to avoid waste and to behave as if every penny spent is coming from their own pockets.
2. Some Service Improvements can Reduce Supply Chain Costs
Remember that there are some service improvements which reduce costs too. For example, any process improvements you can make which reduce errors and rework are going to save money for your company and improve the quality of your service provision.
3. Avoid the Habit of Over-serving
Yes, contrary to popular belief, there is such a thing as providing service levels that are too high. Furthermore, it’s a common mistake made by many organisations—and one which inflates supply chain costs unnecessarily. For example, if you’re providing all your customers with delivery within 24 hours, are you sure they all require that “next day” service? Perhaps some would be happy with a 48 hour lead time, in which case your company is actually over-servicing them. It’s important to speak with your customers and ask them to collaborate with you on achieving supply chain cost reductions. You may find that many will be prepared to change their expectations if there is an opportunity to share in any savings you achieve.
4. Focus on Forecasting
Unpredictability is one of the biggest supply chain cost drivers. The more you can improve the accuracy of your demand-forecasting, the better you are able to control operational costs. Good forecasting software, along with enough understanding of your business to foresee seasonal peaks and troughs in demand, can aid considerably in the avoidance of inventory and transportation cost blowouts.
It’s Not Cheap to Be Cost Effective
Balancing the need to reduce supply chain costs while maintaining high service standards is no easy task, but it’s far from impossible. Perhaps the most important thing to remember is not to focus on “being cheap” by seeking the lowest prices for everything, but rather to consider the long-term value in every financial decision that’s made.
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The Top Three ‘Tried and Tested’ Areas to Cut Supply Chain Costs
How can we encourage our fellow employees to follow new cost reduction strategies/measures without making a difference in their daily schedule.
Many companies create a game or competition to do this. Maybe set a new target with a prize for the person who reaches it first. Give away free cinema tickets to the team that achieves the best result….
By engaging the staff in the changes you will encourage ideas and more improvement.
Thank you for sharing great tips here. It is really helpful post to know exactly how we can reduce cost in supply chain management.
These are great tips very helpful