Effective supply chain management is an essential step in enhancing your business performance. To reduce the burden of these complex systems and optimize your supply chain costs, there are essential strategies and innovative approaches to consider.
This guide will explore beyond traditional methods, introducing fresh perspectives and technologies to enhance efficiency and reduce expenses across your supply chain operations.
The Foundation of Supply Chain Cost Optimization
An organized supply chain increases efficiency while reducing the cost of production, allowing for the timely distribution of the finished product to the consumer. The key is finding a balance between cost reduction and maintaining quality in the supply chain.
Implementing a holistic approach allows for the integration of procurement, production, distribution, and logistics, strengthening the relationship and reliability of your network.
Leveraging Data Analytics for Smarter Decisions
The complexity of supply chains makes it difficult to view the entire process and leaves room for error within the network. Advanced shipping analytics can identify cost-saving opportunities and improve supply chain decisions by turning data into insight.
Each form of data analytics serves an essential purpose:
- Descriptive analytics uses data to describe what happened to identify patterns and trends.
- Predictive analytics project future events. This allows for demand forecasting and inventory management.
- Prescriptive analytics suggest actions to take in response to that data.
For example, the fashion industry uses data analytics to collect historical data, including the length, popularity, and financial success of past trends to predict future trends and design the next season’s garments accordingly.
Implementing IoT and Smart Technologies
Implementing smart technologies and Internet of Things (IoT) devices is a strategy that can reduce operating costs while improving operations. This technology collects data, provides real-time tracking, and ensures accurate inventory counting for greater operational efficiency.
IoT, automation, and robotics play a vital role in operational efficiency. Reducing human intervention means there is less room for error, enhancing production accuracy and speed so the cost of labor is reduced.
Advanced Technologies: AI and Blockchain
Advanced smart technologies like artificial intelligence (AI) and Blockchain further enhance customer satisfaction. The ways that AI can optimize supply chain operations include:
- The predictive maintenance of equipment – AI analyzes the performance of machines so it can detect when the machine is operating abnormally.
- Intelligent routing for deliveries – AI can determine the most efficient routes by analyzing weather patterns and traffic history.
Blockchain is a database of records that is used to record transactions within the supply chain network. This concept has the potential to enhance transparency, reduce fraud, and streamline operations through smart contracts.
Sustainable Practices That Cut Costs
Sustainable supply chain practices not only benefit the environment but also lead to cost savings. Examples of sustainable practices include:
- Reducing waste through better inventory management
- Optimizing transportation routes to save fuel
- Sourcing sustainable materials
- Utilizing renewable energy
There are long-term financial benefits from investing in sustainable technologies and practices. An economic report, Beyond Supply Chains, details that companies that implement sustainable practices can see an increase in revenue of up to 20%, a supply chain cost reduction of up to 16%, and an increase in brand value of up to 30%.
Building Resilient Supply Chains
A resilient supply chain is essential for long-term business success, especially in the face of disruptions like global pandemics or trade conflicts.
In order to build flexibility into a supply chain, implement strategies such as diversifying suppliers, adopting a multi-distribution strategy, and cultivating strong supplier relationships. These provide alternative options in the case of a supply chain disruption.
Cultivating Strong Supplier Relationships
Strong relationships with suppliers can lead to better pricing from negotiations, terms, and collaboration opportunities that may improve operations and customer satisfaction.
Here are some effective negotiation techniques you can implement:
- Define your priorities and your supplier’s goals.
- Don’t accept the first offer if you feel it’s unfair. Let the supplier come back with a different figure, or counter the offer with a figure of your own.
- Don’t reveal the areas you’re willing to compromise right away, and instead use them as bargaining chips.
- Ask the supplier to reveal the starting price and any existing discounts.
- Ensure any agreements are made in writing.
Collaboration with your suppliers also introduces the opportunity to leverage supplier innovation to reduce costs and improve product quality.
The Role of Customer-Centric Supply Chains
From the data collected through analytics, you can adopt a demand-driven planning approach and customize logistics to meet customer delivery expectations. This reduces cost by ensuring that excess resources are not wasted and instead are directed towards meeting the customer’s expectations.
Customer-centric supply chains also prioritize transparency. Communicating the collected data, gathered through meticulous shipping reporting, can enhance customer satisfaction and loyalty, potentially leading to reduced costs associated with returns and dissatisfaction.
Training and Development for Supply Chain Excellence
New technologies are always emerging, so it’s important to continually develop supply chain personnel. Investing in training programs can lead to more innovative and cost-effective supply chain solutions by ensuring your network is equipped with digital skills.
There are many resources you can pursue for supply chain management training and professional development, including:
- Learning platforms such as Coursera, edX, ImaginXP, and Emeritus
- A Supply Chain Management (SCM) certification
With several supply chain management certifications available, you can choose the best way to optimize your training.
The Path to Optimized Supply Chain Costs
Supply chain cost optimization requires a multifaceted approach that includes leveraging technology such as AI and Blockchain, fostering strong relationships with both suppliers and customers and adopting sustainable practices.
Continuously seeking out innovative solutions and technologies—from parcel and freight auditing services to parcel shipping cost comparisons—allows you to stay ahead in the ever-evolving landscape of supply chain management.
Sources:
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- Rozados IV, Tjahjono B. BIG DATA ANALYTICS IN SUPPLY CHAIN MANAGEMENT: TRENDS AND RELATED RESEARCH. 6th International Conference on Operations and Supply Chain Management, Bali, 2014.
- Applications of Technology in Fashion Trend Forecasting – USC Viterbi School of Engineering. Accessed February 23, 2024. https://illumin.usc.edu/applications-of-technology-in-fashion-trend-forecasting/
- Taj S, Ali Shariq Imran, Kastrati Z, Sher Muhammad Daudpota, Raheel Ahmed Memon, Javed A. IoT-based supply chain management: A systematic literature review. Internet of Things. 2023;24:100982-100982. doi:https://doi.org/10.1016/j.iot.2023.100982
- Mostafa N, Hamdy W, Alawady H. Impacts of Internet of Things on Supply Chains: A Framework for Warehousing. Social Sciences. 2019;8(3):84. doi:https://doi.org/10.3390/socsci8030084
- Charles V, Emrouznejad A, Gherman T. A critical analysis of the integration of blockchain and artificial intelligence for supply chain. Annals of Operations Research. 2023;327:7-47. Accessed February 23, 2024. https://link.springer.com/content/pdf/10.1007/s10479-023-05169-w.pdf
- Beyond Supply Chains: Empowering Responsible Value Chains. 2015. Accessed February 23, 2024. https://www3.weforum.org/docs/WEFUSA_BeyondSupplyChains_Report2015.pdf
- Oxford College of Procurement and Supply. The Advantages of A Well Managed Supplier Relationship. Oxford College of Procurement and Supply. Published 2016. https://www.oxfordcollegeofprocurementandsupply.com/the-advantages-of-a-well-managed-supplier-relationship/
- Negotiating supplier contracts. www.nibusinessinfo.co.uk. Accessed February 23, 2024. https://www.nibusinessinfo.co.uk/content/negotiating-supplier-contracts
10. Harbert T. Supply chain transparency, explained. MIT Sloan. Published February 20, 2020. Accessed February 23, 2024. https://mitsloan.mit.edu/ideas-made-to-matter/supply-chain-transparency-explained
Author
Matt Bohn
Matt Bohn
Director of Parcel Rate Services
Prior to his role at Lojistic, Matt held significant positions in the industry, including his tenure as Senior Pricing Advisor at FedEx. Matt analyzed pricing programs and wrote pricing contracts for some of FedEx’s largest e-commerce and retail shippers. He also managed projects for the FedEx Global Pricing Approval Systems and Strategic Account Executive Inputs.
Matt earned a BS in Computer Engineering and an MBA in Finance from the Joseph M. Katz School of Business at the University of Pittsburgh.