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Increase Productivity and Profitability Through Supply Chain Optimization

Increasing profitability is typically the number one goal of every business. The first place to look for cost savings is in the supply chain since there are many areas to closely examine and streamline for increased efficiency. However, one of the big challenges is that many supply chain aspects are interconnected. The result of making a change in one area to reduce costs may increase costs elsewhere. 


There are essentially five types of costs that must be addressed. These are in transportation, inventory, procurement, distribution, and quality. Let's take a look at some cost-saving techniques that you might consider.


Transportation


One of the largest costs in the supply chain involves the delivery carrier. Signing on with one carrier does not mean that you're in a binding, exclusive partnership. As a result, it's important to diversify carrier relationships to avoid being stuck in a jam should one suddenly have to shut down. Having more than one carrier involved in deliveries can result in more control. It may be feasible, for example, to use intermodal or multimodal freight transportation for reduced fuel costs. For example, shipping via train for interstate or cross-country delivery and then utilizing trucking for local transportation may reduce overall freight costs.


Depending on the commodity and your customer's expected service level, the following options can be considered:


LTL (Less Than Truck Load)


For some shipments depending on location, this will be significantly cheaper than parcel and can be close in terms of transit times.


FTL (Full Truckload)


If there is enough product to move, this option is usually one of the least expensive.


FTL with drop off is an option if shipments can be consolidated. For example, one truck can be sent from the east coast and another from the west coast. Using this method, drop-offs can be made along the way. This option is often considerably less expensive than LTL. It also improves overall transit time, reducing the risk of damage.

 

  • Intermodal


In the last ten years, intermodal transportation has come a long way. In this option, a truck can be loaded at the dock and moved to an intermodal yard to be loaded onto a train. This usually works best for long-distance freight moves and is considerably cheaper than a traditional truckload.

 

  • Parcel


This method is best used for smaller shipments. In parcel transportation, one should work with a company that provides dynamic shopping for the best rates on the shipment. These include destination, required transit times, dimensions, and weight. Doing so will often yield savings in the parcel costs with little to no impact on service.

 

  • Inventory


Optimizing inventory to reduce excess and obsolete items can greatly decrease costs. This can be done through the prioritization of carried stock. Inventory can be classified into groups from items that bring the most value to the company to the ones that are the least valuable. These factors can include demand types, pick the frequency, demand volatility, and selling costs. Reviewing demand forecasts can help clarify which products fit these classifications. Elimination of obsolete inventory items that are no longer in demand can help improve inventory turnover. While selling these obsolete items can result in some negative short-term impacts, this strategy can have a positive overall effect on cost in the long run.


Consider implementing a more technological approach to inventory management by using software for many functions. This application can assist managers with forecasting and help reduce costs from overstocking or under ordering products. The right software can fully track all items in real-time as well as automatically reorder inventory as needed.


Another option some companies are implementing is increased drop shipments. In this case, the inventory may show it is in stock, but it is actually being held at another shipping location. For many product categories such as those with high cube items and products with many SKUs, this offers the opportunity to carry the full breadth of inventory, while not actually holding it. This avoids investment and carrying costs.

 

  • Procurement


Procurement savings are a priority to ensure profitability. The first step for procurement savings is the consolidation of vendors. Identify vendors that offer better volume discounts and provide higher quality products. Having fewer vendors to manage can also add efficiency to the process.


Comparing prices with a tender management strategy can also save money. In this approach, numerous companies have the opportunity to bid for the job with competitive pricing.


Another best practice for procurement savings is to reduce maverick spending, (which are purchases made outside the agreed contracts). These often prove to be excessive costs to businesses that must be isolated and resolved.

 

  • Distribution


Making needed improvements in the distribution network is another area to examine for cost savings in the supply chain. Warehouses, production facilities, customers, and your network of suppliers, are all important factors in formulating an effective distribution strategy. Timely delivery relies on all parties involved including delivery teams, production supervisors, and others, to improve this area.


Conducting a network analysis, including consideration for inbound shipments, can significantly reduce transportation costs. When working with a multi-site provider who manages a distributed order management system, the provider can receive the orders and then systemically decide where to ship the product from. The shipping origin is based on the zip code and inventory availability. This process essentially reduces the number of slow-moving items stored in multiple warehouses.

 

  • Quality


Managing quality costs is another place to save costs in the supply chain. This can be done through reductions in rework, scrap, and repeat inspections as part of a sound quality control plan. Additionally, problem identification and resolution can contribute to increased quality and cost savings.


Working with a provider who has a clear, written quality program and can provide evidence of solid, quality processes is essential. These should include written standard operating procedures and a measurement process that ensures your supply chain performs in top form.


Case Studies


Evans Food Group Improves Transportation Logistics


In a report by Supply Chain 24/7, Evans Food Group sought to streamline transportation practices with their logistics company to help realize cost efficiency in its supply chain. By altering production locations and order consolidation, the result was two-thirds fewer LTL shipments and an increase in full truckload orders. 


Other benefits realized were reduced product handling and employee processing time. This also resulted in overall performance improvements, leading to increased customer satisfaction. 


Evans Food Group realized substantial savings with a 20% decrease in landed costs per pallet and a reduction of $10,000 per month on transportation spending. 


MacPherson Art Supplies Cuts Costs with Technology


MacPherson's, the largest art supplies distributor in North America, opted for a technology solution to help reduce costs in planning and refining inventory levels while automating demand planning. They turned to Blue Ridge, a company specializing in supply-chain software to assist in this project. 


Moving to a cloud-based environment, they were able to abandon the traditional spreadsheet method in buying inventory which often resulted in inaccurate forecasts and recommendations as well as slow reactions to shifting trends and other conditions. 


With an inventory software solution, analysts now use machine-learning intelligence which assists them in keeping up with dynamic changes in the market. Since implementing the software, MacPherson's fill rates are meeting service goals of 95%, which plays an important role in retaining customers and growing sales. 


L.L. Bean Upgrades Distribution Processes


Supply Chain Brain documents a case study describing how upgrading the distribution process can improve productivity and cut costs. 


When clothing catalog merchant L.L. Bean started struggling with reaching capacity on e-commerce and store fulfillment orders, they took a closer look at revamping their distribution operations. A replenishment sorter and multi-pick module were installed to speed up the process and make order picking more efficient. Subsequently, shutting down their store DC and merging orders into the e-commerce DC contributed to creating a centralized location for inventory and personnel. The e-commerce DC was overhauled and required conversion to processing orders in waves, implementing a tote-handling system, retrofitting the large sorter, and upgrading their warehouse execution system. 


Though it took over two years, L.L. Bean has decreased order processing time from 10 hours to 2 hours, increased the volume of orders in the DC by 50%, and improved overall productivity by 39%


In conclusion, there are several strategies that can be applied for cost-savings in the supply chain. From improving transportation logistics to upgrading inventory and distribution systems, businesses can realize greater productivity and profitability. 

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