How Do You Manage Your 3 Biggest Supply Chain Costs?

Published : April 10, 2015

man-giving-moneySupply chains hold money like a sieve, leaking budget dollars out from a thousand little seams between suppliers. Normally, even collectively, the chain continues to function despite these relatively commonplace fulfillment costs. When the time comes for shoring up spend, however, three areas get the most focus—at least in an ideal solution scenario. IT systems, shipping and warehousing can all be prominent money pits if left untended, which is why actionable plans to manage supply chain costs are so important to the financial health of your business.

1. IT Systems: Integration, Improvement and Upgrades 

According to a September 2014 guide by tech provider Media Spectrum, keeping your IT spend under control begins with applying Occam's Razor. This theory states, essentially, that entities should not be multiplied unnecessarily—the entities in this case being your tech hardware and software. If half of your workers are using one type of equipment and half are using another, troubleshooting an issue or linking programs is going to take twice as many billable hours. You may even want to consider shifting to virtual servers and cloud-based storage where it's prudent. The cost savings and accessibility are hand-in-hand benefits for this approach.

Buying new technology in bulk can also offer a per-unit discount that further drives down the cost of updating; approaching a tech manufacturer directly will offer the best chance at procuring multiple units at once.

2. Shipping: Transportation and Materials

If you are selling physical products to customers, there's no getting around the cost of shipping. It's more than passing on your fees and dusting off your hands, however. If you aren't getting the best deal on your shipping and shipping materials, you could be inadvertently chasing off customers with those same fulfillment costs.

For a start-up, Entrepreneur's Jane Porter recommends diversifying your shipping quotes across multiple carriers to find the best deal for a given shipment. More established companies may find this kind of constant maneuvering to be more of a burden than a financial incentive, but that doesn’t mean you can’t make the most of your budget. Make sure that you get the best deal by including bulk discounts, prepaid shipping and association discounts as part of their arsenal of negotiation tactics.

When it comes to the materials used in your shipping, carrier-provided boxes are often free or extremely inexpensive, and the savings associated with that perk could well outweigh the cost of self-sourced materials to save a few ounces or inches here and there.

As with IT cost-cutting solutions, digital resources come into play here as well. Printing postage from a USPS online account, for example, could save you 16% or more off their 'base' prices.

3. Warehousing: Storage and Picking

Warehousing may be the trickiest of the triad to rein in, spending-wise. While the best way to get the most out of your budget is to carefully research potential warehousing partners prior to selecting one, all is not lost if you find yourself more or less saddled with your current warehouse team.

Industry provider Allied Distribution recommends maximizing the ability of your warehouse by incorporating modern categorization systems—RFID tags, barcoding and so on—in addition to setting up reverse logistics to expedite returns. Transparency in the form of real-time inventory can, when properly disseminated to your other supply chain partners, safeguard against under or overstocking finished goods and materials.

Here’s the Bottom Line on Reining in Fulfillment Costs:

In general, tightening up your approach to your workflow and building a smooth, modern system that's flexible enough to adjust to occasional disruptions will help keep your costs in check. If you're struggling with piecing outdated tech into a workable system or worrying that you overpay for your shipping methods, using one or all of these approaches can help mitigate problems and infuse your budget with a little surplus.

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Topics: Supply Chain Logistics

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