Ask supply chain experts to suggest quick ways to cut your company's supply chain costs, and their first reaction is likely to be: "There are none." Ask again, however, and they'll probably point out how eliminating waste and reducing inefficiencies can improve the bottom line in a short time.
In Summary:
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Consolidate spending and negotiate volume pricing to control costs quickly.
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Outsource any responsibilities not directly related to your company's core competencies.
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Find ways to align your resources and offerings more closely with customer needs, which can cut costs while adding value.
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For instance, reusing shipping containers or entering partnerships for volume discounts are just two ways to trim costs without reengineering your whole supply chain.
Even if you have a long-range plan to redesign your supply chain, you can begin to make it more efficient and cost-effective now. Furthermore, small cost-cutting efforts can help to build support and funding for broader supply chain improvement initiatives.
The following ideas can help your company get started.
1. Analyze and negotiate all expenses
For midsize companies, which tend to have minuscule flexibility in their budgets, leveraging economies of scale is critical for everything from raw materials and packaging to professional services and travel expenses, says Doug Smock, co-author of Straight to the Bottom Line: An Executive's Roadmap to World Class Supply Management. Business leaders typically underestimate the savings that can be realized during the purchasing process, says the former editor-in-chief of Purchasing Magazine.
A few possibilities include:
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Consolidating long distance and mobile phone contracts company-wide, and considering a bundled package of landline, mobile phone and Internet connectivity. The market is currently so competitive that providers are eager to fight for your business.
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Joining forces with other companies — for example, by joining professional groups or purchasing collectives — to request volume discounts for software, office supplies, airfares, even computers and other equipment.
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Designating specific suppliers as preferred vendors in exchange for special pricing.
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Once your company establishes purchasing agreements, review them on a regular basis to make sure you are still receiving the best possible deal. Automate this process whenever possible so your purchasing department knows when prices change and can act quickly to renegotiate terms. For example, your company might use an online reverse auction such as Ariba to request bids for a frequently purchased product or service. If a participating vendor offers a better deal than you already have, you can switch on the spot, or use the information as leverage to negotiate a more favorable arrangement with your current supplier.
2. Outsource based on what, not where
Forget the rage around offshoring, which Smock notes is rarely cost-effective for midsize companies. Instead, consider domestic outsourcing for activities outside of your core competencies. Tasks such as customer service, customer mailings and human resources may be better handled by a contractor.
Shifting from proprietary to Web-based technologies is another form of outsourcing. Subscribing to an online solution shifts the burden of managing information technology away from your internal IT staff. Today, midsize companies can find affordable, remotely managed solutions for even complex tasks such as data analysis and network security.
3. Streamline your shipping
A process called "optimization bidding," once available only to much larger enterprises, can now help midsize companies slash their shipping charges. Using a strategic sourcing Web such as CombineNet, you can tell freight companies how many containers you have, when they need to be delivered, their origins and destinations, and other shipping requirements and preferences. The freight companies combine your specifications with those of other customers to generate the most efficient shipping routes in both directions and send you a bid. Instead of delivering your package, driving back an empty truck, and charging you for both legs of the trip, the shipper can find another customer with a load heading the opposite direction — and pass the savings to you.
Another way to recoup shipping costs is to choose suppliers or freight companies using containers your company can reuse or return for a discount on future shipments. One such vendor is CHEP, a global pallet and container firm with 265 million reusable containers circulating in 38 countries.
4. Incorporate customer needs
Stephen Hickman, a senior lecturer in marketing and operations at the University of Greenwich Business School in London, once consulted with a company that based its entire supply chain on the ability to deliver orders in 48 hours. Unfortunately, a customer survey revealed that the target market did not actually care about 48-hour delivery service. "What they wanted was to know when the delivery would be made — not just which day, but which time, to the nearest 15 or 30 minutes," he recalls. "We were aiming at the wrong target."
Hickman, who became an operational consultant after 20 years in the oil industry, says being aware of customer expectations lets companies build them into their warehousing and shipping processes as benchmarks. That, in turn, can lower delivery costs — and increase customer satisfaction.
Integrating short-term changes into a long-term strategy
Before you make any changes, however, consider your company's long-range vision. Short-term economizing can cause bigger problems down the road if it conflicts with your long-range supply chain strategy.
To avoid this, your company needs to establish principles and metrics for improvements, then evaluate even the smallest expense reductions based on whether they meet those standards. "Midsize companies can achieve dramatic turnarounds in a year if they set a goal to improve supply chain performance with clear metrics integrated into the company's strategic goals," Smock says. “But it's surprising how few companies do this."
Fawn Fitter is a freelance writer in San Francisco, specializing in business and technology. She has written for publications including Fortune Small Business, Knowledge Management and Computerworld.
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