Considering that the whole purpose of Supply Chain Management (SCM) is to effectively manage movement of products and to reduce the cost incurred by a company, it is logical for the SCM itself to be as cost-efficient as possible. In fact, research shows that cutting down on the costs of SCM is substantially more beneficial to the bottom line, than is a proportional increase in the sales. Saving costs at the first level of SCM is a relatively easy task, with simple strategies such as competitive bidding and strategic inventory limiting being sufficient.
However, when it comes to the second level of this process, it needs more expertise, and becomes increasingly challenging for supply managers to efficiently identify and achieve opportunities that would further lower the cost involved in the supply chain. With the margin of success at this level varying from a cost reduction of just 5% to up to 30%, it is imperative to identify the correct technique, and follow an organized approach to make these techniques work.
The following tips are effective in reducing supply chain management costs:
However, when it comes to the second level of this process, it needs more expertise, and becomes increasingly challenging for supply managers to efficiently identify and achieve opportunities that would further lower the cost involved in the supply chain. With the margin of success at this level varying from a cost reduction of just 5% to up to 30%, it is imperative to identify the correct technique, and follow an organized approach to make these techniques work.
The following tips are effective in reducing supply chain management costs:
- Analyze the total cost components that are involved in obtaining a particular product.
- Tweak the various processes involved during the supply chain and see if any reduction in cost is possible.
- See how costs during transaction, which involves ordering, payment, requisition, etc., can be reduced.
- Replace existing materials with cost-effective ones, while still meeting quality regulations.
- Improve the quality of materials and instruments, for greater efficiency.
- Outsource non-core activities related to purchasing and supply to contractors.
- Effectively manage surplus material and equipment, with an effort to recover maximum possible cost.
- Standardize material variations and specifications, to cut down on inventory costs.
- Establish a line of active communication between different teams, so as to share effective practices and coordinate programs, with an ultimate aim of reducing costs.
- Engage the fastest carrier to reduce delays in delivery, and hence expedite cash flow.
- Identify and eliminate products that are causing monetary losses, and hence also cut down on “loser tax”.
- Engage valuable resources in the most critical areas, which include engineering, supply chain management, design and production.
- Make active efforts to increase labor productivity, and hence reducing production throughput and errors.
- Do not engage in low bidding, and instead, use effective pre-selection techniques to find vendors who will help in design and development.
