Supply chain costs are controlled by management and strategy. You can keep costs down by managing every step in the supply chain process. To find reductions in supply chain costs, supply chain strategies have to align with customer expectations and business goals.
Supply chain strategy gauges the cost-benefit trade-offs of operative components. Knowledge of your particular processes, requirements and needs is essential to find cost savings.
Common places to look for cost savings include warehouse space, inventory stock, supplier relationships, transportation modes and lanes, and order processing. Supply chains are active, so strategies should encourage a hands-on approach to innovation, data analysis, demands and operations.
4 ways to control supply chain costs:
Forecast and Plan. Forecasting demand has a significant effect on the supply chain – it touches inventory, labor, technology and transportation. By predicting demand, considering delays, and anticipating market conditions, you can develop a custom plan to better manage supply chain costs. Avoiding disruptions and consistently meeting demand also improves overall service levels.
Analyze Total Cost. There are multiple variables responsible for the total landed cost: original price of the product, transportation, taxes, insurance, and handling fees. Focus on areas where costs can be controlled. Usually, evaluating your transportation expenses leads to cost saving opportunities. The ability to consolidate freight, automate BOLs, and determine the best mode of transport not only cuts costs but streamlines supply chain operations. Supply chain logistics costs account for 5-50% of a product’s total landed cost.
Introduce Flexibility. A supply chain strategy should be created, evaluated and changed based on service requirements and business goals. It should be a flexible design, supporting a reliable carrier and shipment network, create minimal risk or error, and should analyze of productivity and efficiency measures. Supporting these areas of your supply chain will help you identify and reduce costs, all the while creating expectations and alternative procedures.
Measure Performance. Reviewing performance metrics aids continuous improvement.
Metrics are a powerful way to develop your understanding of your supply chain. When reviewing transportation procedures for cost saving opportunities, metrics like cost analyses (light load detail, average cost per pound) and performance analyses (on-time performance, carrier scorecards) identify opportunities to improve productivity, payments and visibility.
A common transportation challenge of B2B and B2C businesses is lack of supply chain visibility. Without visibility, deliveries are slower, so inventory management suffers and it’s more difficult to manage risk. These challenges appear because of additional costs and unhappy customers. Also, companies can use 3PL for supply chain visibility.
This PLS client was able to find cost savings, visibility and gain control of transportation: Without a transportation department, this mining and exploration company decided to look for a strategic partnership with a 3PL because they needed a competitive advantage. Like many companies that outsource, they hoped to gain strategic cost savings and operational visibility that would put them ahead of their competitors.
Most companies outsource to:
1) Acquire experts, knowledge, and resources that are not available internally
2) Let company management focus on core competencies
3) Cut costs and enhance operations
As a leading mining and exploration company, this PLS client needed to increase visibility into the overall transportation strategy and spend. Therefore, the client relied on vendors to manage the transportation of supplies and equipment for their multiple locations. Since the vendors were arranging and billing the shipments, the client didn’t realize that they were overpaying 15-50% on every inbound shipment.
PLS’ account management team analyzed the situation and delivered solutions that would provide lasting results. Firstly, PLS procured highly capable and cost-effective carriers for inbound and outbound shipments. Then, the PLS team evaluated the market and provided insight to the company about best practices, metrics, and performance so they could implement strategic operational changes that would boost productivity and create a more efficient supply chain process. Also, PLS sends this client daily updates on all shipments, segmented by projects, and codes invoices so they can be allocated to the transportation budget. Ultimately, using a 3PL for supply chain visibility was found as a proper solution.
More than 10% cost savings on LTL shipments, inbound shipments, and truckload lanes.
Control over transportation processes and transportation spend through detailed cost reports and TMS reports.
Visibility across all transportation decisions and spend.
More bandwidth and resources.
Accurate budgeting based on capital expenditure projects and transportation costs.
Many businesses want to leverage big data in supply chain initiatives to drive efficiency, cost savings and unparalleled operational visibility. In order to do this, however, a business must have an enterprise-wide infrastructure for information gathering. Only 35% of organizations use a transportation management system (TMS), meaning most companies do not have much visibility into shipping processes, but more importantly, don’t have access to data that’s part of the end to end supply chain insight that’s necessary for big data initiatives.
Use a TMS for Data Collection First
There’s more data available now than there’s ever been, and the potential applications are endless. The problem comes in collecting and analyzing all this data in a timely manner. The first and easiest step is to collect the information, but many companies overlook the impactful data available from transportation.
A TMS will constantly monitor shipping processes and gather data for analysis. Typically, a cloud-based TMS is best for data gathering, as many shippers and carriers are providing information through the same portal, making data collection easier and more accurate.
TMS software is great for cost savings, even immediately after implementation, but its true value comes in the data it provides. It collects information from a variety of internal and external sources, enabling historical data analysis and optimization in freight transport. But most importantly, it contributes a crucial portion of data for end-to-end visibility.
With the help of a TMS, any business can begin collecting transportation data. There are numerous metrics available for analysis and it can be difficult to decide which is most important, especially for those companies still building a foundation of data collection in freight transportation.
What are the best metrics to collect and analyze?
Start with the Basics
It’s best to start with simple data collection – large amounts of information can be overwhelming to manage at first, and you’ll want to take the time to ensure you’re gathering quality data. Most shippers, even with manual processes, will collect some information from the shipping process. Usually, they know overall freight costs, on-time pickups and freight cost by location.
These metrics provide you with an idea of overall performance in transportation, but not much else. You know something is wrong if your overall transportation costs skyrocket for a few months, but you probably won’t know why.
There are a few simple TMS metrics that can expand your understanding of your transportation processes. These 3 reports are the building blocks of transportation visibility:
Light Load % – This metric reveals what percentage of shipments are sent under the minimum weight requirement of a truckload trailer. If there’s a minimum of 40,000 lbs. on a trailer and a company consistently only loads 35,000 lbs., they will still be charged for a 40,000 lb. shipment. A TMS collects this information through its automated billing features. With this data, you can better understand freight costs and focus your attention on trailer utilization. Light load percentage can be a starting point to start tracking other related metrics like the efficiency of truckload versus less-than-truckload (LTL) shipping, or the effectiveness of freight consolidation.
Total Loading Time – This metric refers to the amount of time it takes for a trailer to be loaded, starting the second a truck enters a facility’s gates and ending the moment it leaves. A TMS collects this information through EDI scans at a loading facility. Total loading time is important because it provides insight into the efficiency of the loading dock and the entire facility. A company may be efficient at the dock but could keep a driver waiting for hours before they actually start loading. This metric is a foundation for creating more efficient facility procedures, staff scheduling and can help you leverage lower costs since carriers prefer working with shippers who get their drivers in and out of a facility quickly.
Fuel Detail Reports – Fuel, either calculated as a cost per mile or percentage of freight costs, is a major cost component in transportation. A TMS captures this information through automated billing procedures. Visibility into fuel costs helps create a clearer picture of overall costs, but can also go hand in hand with light load percentage, as fewer trucks will use less fuel. Fuel surcharges and pricing structures are not the same between carriers and across the industry. Consistently reported fuel costs to help you compare carriers pricing methods and can even help you leverage lower base rates in the future.
Tracking these metrics will enable you to branch out into more data, and gain close visibility into a crucial aspect of the supply chain.
Collecting this type of information in transportation is not technically a Big Data initiative, but can provide a foundation for more intensive data gathering in the future.
Companies are strategically moving manufacturing facilities, examining labor costs and time to market, plus looking for accessibility to existing or developing markets and sources of innovation. Some companies are moving facilities offshore or nearshore, while many others are bringing production back to the US. According to a study from Boston Consulting, 54% of US manufacturers with more than $1 billion in revenue are considering reshoring some or all of their manufacturing.
What is Reshoring?
Reshoring refers to reestablishing manufacturing operations in the US, after previously being located offshore. Since offshoring presents manufacturers with challenges like rising labor costs, long and costly transportation routes, delivery issues, language barriers, fluctuating demand, and inconsistent product quality, companies are bringing manufacturing facilities back to American ground.
In 2014, 60,000 manufacturing jobs were added in the US as a result of reshoring or through direct foreign investment, according to the Reshoring Initiative, a non-profit founded in 2010.
What is Nearshoring?
Nearshoring refers to companies moving manufacturing processes to a nearby country. Mexico is a popular location for manufacturing companies that are looking to be close to its customers in the US. Nearshoring will continue to grow in Mexico because of low labor costs, technical abilities and vicinity to the US.
But, companies setting up facilities in Mexico doesn’t help the US manufacturing market. America is seeing some growth because companies are weighing in factors like total costs and supply chain risks in their decision. Businesses can’t succeed without a productive and well-run supply chain, so analyzing influences like transportation rates, labor, government, economy, and risk could be the key differentiator in determining where a manufacturing plant is based.
What Industries Will Benefit from Reshoring & Why?
Industrial and chemical industries that benefit from inexpensive natural gas will reshore. Chemical manufacturers require little labor for adequate output, so having manufacturing on US soil makes the most sense. Products with inconsistent demand, like fashion and technology, will also benefit from reshoring, since the value and weight of the product don’t warrant costly air freight. In 2014, apparel companies saw a 12% rise in American production.
Some retailers, like Wal-Mart, are influencing the manufacturing sector by pledging to purchase $250 billion in US-made products by 2023. As a result, plastics, motors, and apparel products are rebuilding and growing to manufacture in the US. A marketplace for “Made in America” products is critical to empowering and end-to-end US-based supply chain.
Major Companies Reshoring
GE has moved the production of appliances from China to Kentucky and has created more than 4,000 jobs since 2008.
Caterpillar now manufactures its vocational trucks in a 1.1 million square foot factory in Texas.
Apple announced plans to manufacture one of its Mac lines exclusively in the USA. The plant is in Arizona and created more than 2,000 jobs.
Intel opened a $5 billion chip manufacturing facility in Arizona.
Brooks Brothers bought a manufacturing plant in Massachusetts and has moved 70% of its production there.
Supply Chains Take on Reshoring
Companies are reevaluating offshore manufacturing, and discover the increased labor costs and high oil and transportation prices make it less attractive.
The market is constantly changing; customers are demanding higher quality products, faster. Moving manufacturing close to the marketplace is a practical, cost-effective supply chain strategy. To find the best manufacturing location, a company has to assess disruption, customer and supplier proximity, supply availability, technology, and other competitive factors. A company needs a supply chain solution that optimizes the flow of goods.
By producing goods and supplies closer to the customer, manufacturers eliminate the long supply chain that offshoring requires. Reshoring helps a company’s supply chain remove intellectual property risks, optimize freight movement, and create flexible inventory schedules based on demand. Reshoring is a supply chain strategy based on economic forces. Companies see advantages in US manufacturing because it provides a leaner, shorter supply chain and more transportation options.
Shipping Solutions for Manufacturers
No single decision on manufacturing is right for every company, however, the steadfast rule remains: vicinity to existing and emerging markets and overall cost of production are the primary reasons to open or move a manufacturing plant. As companies move locations, it can be challenging to recognize good transportation rates and how to reduce transportation costs.
Manufacturers rely on the efficient flow of inbound and outbound goods. Without determining the best transportation modes, lanes and controls, a manufacturer lacks visibility. By implementing a TMS, a manufacturer can optimize processes with real-time visibility, determine the best carrier and rates, eliminate manual paperwork, and reduce supply chain risks. This kind of optimization creates related benefits, such as centralized supplier, inventory and retailer management.
Learn more about 3PLs transportation management technology here.
As freight volume grows and transportation becomes more complicated, the need for robust logistics management increases. Logistics management is a primary factor in the success of any company’s operations and has a direct impact on its bottom line. Additionally, meeting customer demand and providing superior service is one of the goals of good logistics management.
What is Logistics Management?
According to the definition of The Council of Supply Chain Management, “logistics management is a part of supply chain management that plans, implements, and controls the efficient flow and storage of goods, services, and related information in order to meet customers’ requirements”.
Fundamentally, logistics management is the control and supervision of the movement of goods. However, the scope of managed processes reaches far more than that. It involves a multitude of different factors including transportation management, freight and inventory management, materials handling, and order fulfillment.
How Logistics Management Can Benefit You?
Increased customer satisfaction
Consumers demand better service, and this mandate creates a need for shippers to provide fast, accurate and quality service. Good management strategy is aimed to constantly optimize transportation processes and eliminate disruptions. Therefore, it has a direct impact on your customers’ satisfaction. Improved customer service can bring a good reputation to a company’s brand and help generate more business. The smoother the freight moving processes are within and beyond your company means that you will provide more value to your clients. Ultimately, well-handled logistics contributes to the overall positive customer’s experience.
Visibility and insight Cost Savings
It is important to create visibility into a company’s supply chain. Advanced transportation management systems (TMS) analyze historical data and track the real-time movement of goods in and out of a business. Logistics managers can use this information for process optimization and avoiding potential disruptions. TMS data analysis keeps a company’s supply chain moving more efficiently, all while gaining operational insight.
Managing logistics on a proper level will give a company control over inbound freight, keep inventory at optimal levels, organize the reverse flow of goods, and utilize freight moves on the proper transportation modes – all of which can cut costs significantly.
Key Logistics Management Goals
Essentially, before turning to external help and investing in management technology, you want to make sure it will bring beneficial results. That’s why it is important to know how to measure the effectiveness of any new practices.
Improve operating cost structure
Reduce overall transportation costs
Improve customer service
Many companies look to third-party logistics providers (3PL’s) for help as this simple concept can often become very complex and not so easy to execute. 3PL’s have the expertise and advanced technology to cut costs and improve processes much more efficiently than companies can in-house.