Saving Money in Your Supply Chain: Positive Strategies to Overcome Fear
In today’s volatile business environment, many companies are grappling with the fear of supply chain disruptions and rising costs. However, rather than succumbing to this fear, there are positive steps you can take to save money and strengthen your supply chain.
Embrace Flexibility and Diversification
One of the key lessons from recent supply chain challenges is the need for greater flexibility. As the CEO of Ingka Group (which operates IKEA stores) noted, “The world has become more dynamic and turbulent in recent years.” To overcome this volatility, consider diversifying your supplier base and transportation routes.
“Accessing lower-cost and specialized suppliers across borders opens doors to better deals and more competitive sourcing,” explains a procurement expert. Similarly, optimizing your logistics by streamlining processes across a global network can reduce costs. This wider supplier pool and optimized logistics can provide a crucial cost-reduction lever.
Prioritize Sustainability
Surprisingly, sustainability efforts can also contribute to cost savings in your supply chain. As the McKinsey report highlights, “Depending on the industry, the first third of the decarbonization journey can be net-present-value positive, saving money while reducing emissions.”
For example, the carpet manufacturer Interface set out on a “mission-zero” target back in 1994, which not only reduced their environmental impact but also yielded financial benefits. By embracing eco-friendly practices and technologies, you can shrink your carbon footprint and your spending.
Empower Your Teams
Strong leadership is essential for driving successful cost-reduction initiatives in your supply chain. As the procurement guide notes, effective leaders “empower teams to identify and implement cost-saving solutions” and “encourage collaboration across departments and foster creativity to achieve better results.”
When your employees feel empowered to innovate and find creative solutions, they can uncover unexpected ways to cut costs. Establish clear goals, provide resources, and hold teams accountable to ensure your cost-saving efforts are successful.
Optimize Total Cost of Ownership
Looking beyond just the purchase price, you can achieve significant savings by focusing on the total cost of ownership (TCO) in your supply chain. This includes factors like inventory carrying costs, which can range from 20-30% depending on the industry.
Initiatives like just-in-time (JIT) inventory management or vendor-managed inventory can help reduce these carrying costs and streamline your operations. Additionally, analyzing and reducing transaction costs, such as the expenses associated with purchase orders and invoicing, can contribute to overall savings.
Leverage Data and Technology
Data and technology can be powerful allies in your quest to save money in the supply chain. As the Oliver Wyman article suggests, retailers can “use technology in three ways to proactively negotiate with suppliers”:
1. Tracking the evolution of underlying commodity costs to identify opportunities
2. Analyzing the broader vendor relationship to determine the right negotiation tactics
3. Organizing a company-wide negotiation campaign to capture value
Beyond negotiations, digital solutions can also help you automate repetitive tasks, gain better visibility across the supply chain, and make more informed decisions. Investing in the right tools and technologies can unlock significant cost savings.
Embrace a Positive Mindset
Throughout this process, it’s important to maintain a positive mindset. As the Investopedia article reminds us, “Excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.” Avoid the temptation to take on excessive debt, which can lead to financial vulnerabilities down the line.
Instead, focus on the opportunities that lie ahead. By embracing flexibility, sustainability, empowered teams, total cost optimization, and data-driven decision-making, you can navigate the current challenges and position your supply chain for long-term success. Remember, the path to cost savings is paved with positive, proactive strategies.
