Levers for Optimising Supply Chain Costs

April 13, 2024

Levers for Optimising Supply Chain Costs

In today's highly competitive business landscape, managing supply chain costs effectively is pivotal for maintaining profitability and achieving sustained success. Optimising these costs ensures that companies do not compromise on quality or customer satisfaction, providing them with a significant edge in the market. This in-depth guide delves into five critical levers that organisations can adjust to optimise supply chain costs: refining the network footprint, enhancing operational processes, fostering deeper supplier relationships, improving demand planning and inventory management, and strategically planning workforce requirements.

1. Optimising Network Footprint, Distribution Methods, and Fixed Asset Profiles

Network Footprint

A well-optimised network footprint dramatically cuts supply chain costs by strategically positioning production sites, warehouses, and distribution centres. For instance, placing a distribution centre closer to a cluster of customers reduces last-mile delivery costs and speeds up distribution. Analysis should include geographic mapping of demand hotspots, evaluation of trade-offs between real estate and transportation costs, and consideration of local regulations and workforce availability.

Distribution Methods

The choice of distribution methods has direct implications on efficiency and cost. For example, implementing cross-docking techniques where incoming shipments are unloaded directly into outbound trucks without storage can reduce handling times and warehousing costs. Similarly, evaluating modal shifts like moving from road to rail for long-distance hauls can offer substantial savings in fuel costs.

Fixed Asset Profiles

Optimising fixed assets involves not just maintaining but also right-sizing equipment and infrastructure according to current and future needs. Regular audits can identify underutilised assets or those due for upgrades to more efficient models, such as switching to automated storage and retrieval systems (ASRS) in warehouses to reduce labor costs and increase retrieval speeds.

2. Optimising Workflows and Operational Processes

Efficient workflows and streamlined operational processes are essential for minimising wasteful expenditures. Integrating advanced software solutions for enterprise resource planning (ERP) can automate and synchronise operations across departments, from procurement to production to shipping, enhancing visibility and coordination.

Lean Manufacturing

Adopting lean manufacturing techniques can eliminate waste through continuous improvement and just-in-time manufacturing, ensuring that resources are only used as needed and inventory costs are kept at a minimum. For instance, a kaizen event might streamline the assembly line to improve the ergonomics and reduce the time it takes to build a product.

3. Working Closely with Suppliers to Optimise 'End-to-End' Value

Developing strategic partnerships with suppliers can lead to better pricing models, innovations, and shared efficiencies. Companies should conduct regular performance reviews and engage in joint development activities to foster a sense of mutual investment in success.

Supplier Integration

For example, involving key suppliers early in the product design process can help in identifying cost-saving opportunities through design simplifications or alternate materials that meet performance requirements at a lower cost.

Vendor Managed Inventory (VMI)

With VMI, suppliers maintain ownership of the inventory until it is consumed or sold, which can significantly reduce inventory carrying costs for the buyer and streamline the replenishment process based on real consumption patterns.

4. Demand Planning and Inventory Optimisation

Effective demand planning ensures optimal production levels, avoiding excess stock and ensuring that capital is not unnecessarily tied up in inventory. Sophisticated forecasting tools that use historical sales data, seasonal fluctuations, and market trends can improve accuracy.

Simulation and Modelling

Simulation models can help predict the impact of market changes on demand and assess possible response strategies without risking real-world losses. These tools allow companies to test different scenarios and develop more responsive supply chain strategies.

Advanced Forecasting Techniques

Utilising advanced forecasting techniques and tools can dramatically improve the accuracy of demand planning. Machine learning models, for instance, can analyse large datasets to predict future demand patterns more accurately.

Inventory Optimisation Models

Inventory optimisation models help determine the optimal stock levels that a company should maintain to meet expected demand without overstocking. Techniques such as Economic Order Quantity (EOQ) and Just-In-Time (JIT) inventory can substantially lower holding costs and improve cash flow.

5. Workforce and Labour Planning to Optimise Headcounts

Strategic workforce planning involves aligning the workforce with the anticipated needs of the business, ensuring that staffing levels are appropriate and that employees are well-utilised but not overworked.

RACIs in Workforce Planning

Implementing Responsibility Assignment Matrix (RACI) charts can clarify roles and responsibilities in supply chain processes, ensuring that everyone knows their specific duties and how they fit into the broader operational context. For example, a RACI chart for a new product launch might specify who is responsible for sourcing new materials, who is accountable for budget approvals, who needs to be consulted in the design phase, and who should be informed about progress at each stage.

Technology Leveraging

Automation and advanced scheduling systems can further optimise labour usage by identifying the best times for production runs, maintenance, and other labour-intensive activities, ensuring that labour is used efficiently during periods of high demand.

Optimising supply chain costs requires a meticulous approach that integrates improvements across various dimensions of the business. By leveraging these five strategic levers and incorporating tools such as RACI for clear communication and role delineation, companies can not only reduce costs but also enhance service levels and customer satisfaction, securing a formidable competitive position in the global marketplace. Each lever, while powerful on its own, is most effective when implemented as part of a comprehensive, integrated approach to supply chain management.

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