Reducing expenses through supply chain cost optimisation
The global inflation crisis has placed additional strain on supply chain networks. Rising input costs have exerted significant pressure on margins. As a result, business leaders need to plan their strategies better, account for disruptions, balance cost with service, and look for alternate resource uses as a part of their supply chain management process. Traditionally, cost management involved short-term cost-cutting measures that inevitably affected service levels, leaving stakeholders averse to the idea. However, the pandemic showed us that cost optimisation in the supply chain must move toward optimising the total cost of ownership rather than choosing the lowest supply chain costs.
What is supply chain cost optimisation?
The aim of supply chain cost optimisation is to control supply chain expenses to improve the return on investment while maintaining reliable supply. This involves evaluating all the supply chain functions and optimising the processes. This holistic approach helps reduce costs without placing the supply chain at risk. The scope of supply chain cost optimisation includes:
- Cost, quality, and supply of raw materials
- Transportation methods and costs
- Procurement process
- Inventory planning and management
- Cost of distribution and logistics
- Demand forecasting and supply chain planning
- Customer service levels
Thus, cost optimisation of the supply chain encompasses all aspects, from raw material sourcing, procurement, and inventory management to last-mile logistics and customer satisfaction.
The benefits of supply chain cost optimisation
According to a recent survey, 79% of companies believe that supply chain optimisation directly improves revenue. Besides directly impacting the bottom line, cost optimisation creates a lean and agile supply chain, builds resilience, and improves production efficiency. Here are some of the benefits to be derived from optimising the supply chain.
- Better quality control: By evaluating the procurement and supply processes, optimisation helps maintain end-to-end quality control. It helps reduce waste and manage key metrics linked to performance.
- Lower overhead costs: The purpose of cost optimisation is to find ways to reduce expenses by evaluating all supply chain functions. It involves making changes that reduce operational activities without a trade-off with service levels. Hence, lowering overhead costs comes as a direct result of this activity and impacts the business’ profitability.
- Steady flow of materials and information: Supply chain reliability and resilience are critical for your business today. Investing in real-time tracking, integrated inventory, and logistics management, as well as enhancing the end-to-end visibility of the supply chain, help reduce wastage costs such as costly sourcing, improper packaging, opting for unsuitable transportation modes, and poor last-mile logistics.
- Higher efficiency: Using predictive and prescriptive analytics helps in demand forecasting, planning and managing costs of production, procurement, inventory, and distribution. This results in higher efficiency and time and cost savings.
- Better collaboration: Supply chain networks share real-time information with suppliers, 3PL partners, and customers. This ensures that valuable time and money are not spent on addressing disruptions caused by miscommunication. It allows all stakeholders to participate and allow the supply chain run smoothly for mutual benefit.
How to reduce costs through supply chain network optimisation?
The next step is to know how to reduce costs in a supply chain. The answer does not lie in compartmentalising functions and cutting costs by substitution. You must align business value, such as profitable growth, customer experience, compliance, and sustainability, with efficient supply chain results of demand fulfilment, product supply, and new products/business. Let’s look at some of the ways to do this.
- Manage supplier inventory: Your suppliers need to be on the same page as you. Share the demand planning of your business and collaborate with the suppliers’ demand planning to ensure smooth supply and optimum inventory management. By sharing forecasts and timeframes, you and your suppliers can have greater transparency, which reduces the time and cost of managing avoidable disruptions.
- Maximise space: Reduce overheads by optimising warehouse management. Ensure full use of space or revisit demand planning for modifying inventory needs. Paying for warehouse space but not utilising it to its limit is a waste of resources and finances.
- Track performance: Performance tracking of all supply chain functions using KPIs is essential to measure efforts and track progress. With the help of analytics, it necessary to set realistic targets and provide forecasts for stock renewal, logistics, etc.
- Deploy inventory management: Inventory management is essential to avoid the cost of wastage, ensure timely delivery to customers, and have 100% inventory accuracy. This guarantees timely delivery to customers without spending on additional purchases.
- Create reliable demand planning: Customer demand planning is at the core of cost optimisation. Knowing what the customers may expect can help your business understand what they want and when they want your products. This reduces the cost of last-minute expedited charges and other unplanned supply chain overheads.
- Focus on the customer: Cost optimisation should not be a trade-off against customer service levels and quality expectations. Focussing on the customer helps to offer them choices that your supply chain can handle, such as paid expedited delivery option, subscription for free shipping, and other similar ideas.
For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like living organisms will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.
How can Infosys BPM help?
You can enable an agile and responsive supply chain with Infosys BPM. Our digital supply chain services help streamline and digitalise the supply chains and build a supply chain that can be cost-efficient while mitigating risks. We provide comprehensive solutions like consulting, technology intervention, and managed services for the efficient supply chain management.