A Guide to Reduce Supply Chain Costs and Save Money
The summer months combined with the continued challenges brought by COVID-19 could mean that your business is running a little slower than usual. Yet this downtime might not come as much of a respite as you face the stress of trying to contain costs to offset some of the impact of this difficult economic environment. However, finance and procurement teams can use this time to dive deeper into supply chain costs, both to find ways to reduce expenses now while also setting your company up for long-term success.
Identify Unnecessary Spend
As you look into your supply chain, you might find unnecessary spend that can be trimmed to create immediate cost savings. Perhaps you no longer need to procure certain items due to a change in your own customers’ behavior, or maybe you’ve been turning to third parties for services that you’re better off handling in-house.
For example, a retailer might be able to save money by shortening its supply chain during the shift from in-person shopping to e-commerce. Rather than paying for shipping and storing so much inventory, procurement teams might be able to find manufacturers to work with directly who can ship products straight to end-customers as they’re ordered online.
Other companies might have contracts in place to order a certain amount of products each month, but if business has slowed down, perhaps you can scale those contracts back. See if your vendors are willing to work with you to renegotiate contracts to fit the current environment. Even if the contract can’t be adjusted, you can at least start to prepare for how you want to negotiate your next contracts with more flexibility.
Another way to reduce supply chain costs is to compare vendors to see whether you’re getting optimal pricing. Perhaps you’ve been working with the same vendors for several years and haven’t conducted a competitor analysis in a while. In that case, reviewing other vendors’ offerings and quotes could help you see whether you’d save money by switching suppliers. Or you could use these other options as leverage to renegotiate with your existing vendors.
In addition to comparing vendors against one another on cost, you can also dedicate time to reviewing how your suppliers align with your long-term strategies in areas such as sustainability, risk management, and diversity and inclusion. You might find, for example, that your efforts to foster diversity and inclusion fall short in terms of working with minority-owned suppliers. And while adding more diverse vendors might not immediately reduce costs, building a more inclusive supply chain can go a long way toward improving your overall finances. For example, working with diverse suppliers can help improve customer and employee experience, which can help you reduce retention costs, on top of being the right thing to do.
Turn to Technology
To help identify unnecessary spend and analyze vendors to reduce costs, procurement and finance teams can turn to digital technologies like spend management platforms and other analytics tools. Doing so can help provide a clearer picture of spend and increase efficiency.
As a Capgemini study finds, approximately three out of four organizations say cost savings are the main driver behind investing in digital supply chain initiatives. “Digital supply chain initiatives use digital technologies to optimize operations across the entire supply chain by enabling connectivity, data management, insights, and smart automation,” the consultancy notes.
Similarly, A McKinsey study finds that one of the top areas where AI can cut costs is in supply-chain management, particularly via areas like spend analytics. AI can even be used to automatically suggest lower-priced products to employees before purchasing.