Five Ways to Cut Supply Chain Costs and Improve Efficiency

by: Loraine Lawson

Earlier this week, I wrote about the ever-present push to reduce costs in the supply chain. Even when chief procurement officers say they’re more interested in product quality or service, cost control remains a top priority.

Cost cutting can be tricky, though. Chief procurement officers and supply chains managers walk a thin line between maintaining quality while reducing expenses. But it is possible to do both, particularly if you focus on being more efficient rather than just cut supply chain costs.

Here are five ways supply chain managers and chief procurement officers are pursing supply chain costs savings:

Engage with your suppliers. More chief procurement officers want to increase their collaboration with suppliers over the next 12 months, according to Procurement Leader’s Procurement Intentions Index released this month. How can that save you money? Besides the obvious potential for brain-storming ways to be more efficient and cut supply chain costs, you can also ensure suppliers have an adequate capacity for growth — a move that can save you time and money by ensuring you don’t have to find a new supplier on short notice. Thirty-seven percent of European manufacturers worried about the price volatility of key cost input and pricing; knowing what your suppliers can and cannot do will help you avoid some of this price volatility. You can also share project timelines with suppliers to ensure you’ll have the parts when you need them.

Support small and mid-sized enterprises and help them enter the market. A recent report by the Offshore Wind Cost Reduction Task Force offered this recommendation at the recent Wind Turbine Supply Chain Conference, but the advice is good for all supply chains. By supporting small and mid-sized suppliers, you’re ensuring there’s competition, which will lowers costs. Some high-tech companies will even provide the money and guidance for entrepreneurs willing to start a manufacturing plant, if they’re willing to build a critical part or technology. In exchange, the manufacturer can’t offer that item to competitors.

Manage risks. Risk management has become a major issue for many supply chains over the past two years; it’s even lead to a reversal of the outsourcing trend, with high-tech companies and others moving more of their supply chain back to their own countries. While risk management is more about reducing your chances of incurring costs, but it can also be a great opportunity to examine ways to reduce existing costs in your supply chain. For instance, when companies evaluate risks, they can switch to suppliers with a more stable infrastructure and lower day-to-day logistics costs in the process.

Ask for discounts from high-volume suppliers. The UK-based supermarket Morrisons called in 200 and 300 suppliers last month, and reportedly asked for savings of £500k from each. While they may not get the full amount, one supplier admitted they were likely to get half. While Morrisons disputed it was that simple, but the point still stands. Ask, and you may receive at least half.

Consolidate your supply chain. This seems to run counter to advice on risk management, but with prudence, it’s possible to reduce the number of suppliers and cut costs. This is actually the key part of Morrisons strategy, according to reports: By buying larger volumes from fewer suppliers, the company believes it will benefit from cost-cutting efficiencies. It’s also seems to be a trend a lot of chief procurement officers are pursuing, according to Procurement Leader’s Tim Burt.