07/06/16 6:17 am

Are there hidden costs lurking in your supply chain?

It may be that you’re shipping away profit as you ship away your products.

That’s why we’re going to use this blog post to discuss how to look for and avoid hidden costs in your supply chain. Without understanding and controlling these costs, you won’t be able to determine the true “landed cost” of your products.

The Council of Supply Chain Management Professionals’ Supply Chain Quarterly lists ways you can cut costs on your supply chain:

Let Your Customers’ Requirements Mold Your Supply Chain Strategy.

It’s a question of giving them what they want, not “just what they think they want,” writes logistics expert Rob O’Byrne.

“It’s a straightforward application of marketing principles: provide customers with what they need and avoid adding costs for things for which they see no value,” he says. “Although this sounds simple, real-life examples of companies that get it back-to-front are numerous.”

One company provided all its clients with next-day delivery, even though not every customer needed or even wanted this service, causing the company to waste money on express transport.

Another company offered free shipping as a salve to customer complaints and ended up losing $500,000 in revenue. Both the distributor and its customers would have been better served, O’Byrne said, by addressing the problems that led to the complaints.

Your Objectives Should Drive Your Strategy, Not The Other Way Around.

Once you determine your customers’ needs, you can come up with a supply chain strategy that fits your needs and delivers on your customer service promise.

O’Byrne suggests asking yourself if these problems have occurred to tell if you’ve taken the right approach:

  • Your company doesn’t have a documented – or even generally understood – supply chain strategy.
  • Your company thinks of the supply chain as something isolated to one or two departments, rather than involving the entire enterprise.
  • Customers are dissatisfied with costs and services.
  • Many supply chain projects are handled within “silos,” i.e. within individual departments.

“A supply chain strategy is a living thing,” O’Byrne writes. It needs to be flexible, clear and precise.

We would also suggest a few more specific ways you can root out avoidable costs:

  • Transportation and delivery costs – A supplier who can aggregate container shipments can help you save on shipping.
  • Quality control – A lack of proper product testing can put roadblocks along your supply line. By working with a manufacturer with an onsite quality team, you lower your risk of inferior goods making their way to your customers.
  • Specification drift – This concept ties into quality control. When a manufacturer allows for substitutions in parts or materials – in other words, drifting away from the specifications – they put the finished product at risk.

Supply chain management is only part of what Mars International can do for your company. By working with a global network, we ensure our clients’ products get to market in a way that’s fast, but also reliable and cost effective.

Contact us today, and we’ll help you uncover the needless costs hiding in your supply chain.

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