Reducing Supply Chain Costs with Visibility Solutions
During a period marked by ongoing economic unpredictability, rising inflation, and international disputes, companies face mounting challenges in managing supply chain expenses. A recent study revealed an eye-opening statistic: the cost of business logistics in the United States has soared to $2.3 trillion, accounting for 8.7% of the country’s GDP.
Take the complexities mentioned above, and couple them with the lingering effects of the COVID-19 pandemic and persistent extreme weather events, and the result is a range of major challenges and disruptions to global shipping.
In this increasingly complex and competitive business market, optimizing supply chain operations and reducing costs is a matter of survival. To remain profitable and resilient, businesses must identify and address inefficiencies, mitigate risks, and adapt to changing market conditions.
So what exactly are the key drivers behind escalating costs, and how can they be tamed? Understanding this is the first step toward effective cost management.
The role of visibility in supply chain cost management
Supply chain visibility, the real-time access to a company’s entire supply chain operations, is a major factor in effective cost management. Utilizing technology, data integration, and collaboration enables businesses to understand their supply chain in-depth, leading to informed decision-making based on data and substantial cost savings.
As such, end-to-end visibility:
Optimizes operations and reduces costs Visibility software provides a granular view of the supply chain, allowing businesses to identify and address inefficiencies in real time. Through detailed monitoring of production schedules, transportation routes, and order fulfillment processes, companies can locate bottlenecks, adjust resource allocation, and speed up operations.
Enhances collaboration and negotiation Visibility fosters trust and transparency among supply chain partners, leading to better negotiation terms, improved communication, and joint problem-solving.
Proactively mitigates risks Real-time alerts for delays, deviations, or anomalies enable proactive measures to prevent issues from escalating and reduce costs associated with expedited shipping and rush orders.
Builds customer loyalty Accurate delivery estimates and minimized disruptions improve customer satisfaction, resulting in repeat business and positive word-of-mouth.
In essence, supply chain visibility is a strategic instrument that transforms raw data into actionable insights for more thoughtful decision-making, improved daily activity, and stronger partnerships. By embracing this holistic view, companies can tap into hidden value and drive sustainable growth in an increasingly competitive industry. The big question is: what are the primary factors that are driving these costs, and how can businesses effectively manage them?
Supply chain cost drivers
Numerous variables contribute to the overall cost of a supply chain. That’s why understanding them is so important — it allows businesses to identify areas where supply chain cost reduction measures should be put in place.
Inventory costs
Transportation costs
Labor costs
Supplier costs
Technology costs
Inventory costs
Inventory management is a vital component of supply chain operations, providing a buffer against market volatility while ensuring businesses meet customer demand. However, maintaining optimal inventory levels requires a delicate balance — excess inventory ties up capital and incurs holding costs, while insufficient inventory can lead to stockouts and lost sales potential. Real-time visibility into inventory levels across all locations is vital for accurate tracking, preventing overstocking or understocking, and minimizing warehousing and transportation costs.
Transportation costs
Transportation costs include any expenses linked to the transport of goods, including freight costs, handling charges, fuel, insurance premiums, and other associated expenses. These costs are impacted by factors such as the distance traveled, the transportation mode (air, sea, rail, or road), fluctuations in fuel prices, and carrier rates. Effectively managing these costs will require determining the best routes, diversifying carrier networks, combining shipments, negotiating more favorable contract rates, and considering alternative transportation modes to achieve the most cost-effective outcomes.
Labor costs
Labor expenses play a significant role in supply chain activity. These expenses cover wages, benefits, and other costs associated with the workers involved in procurement, production, warehousing, and transportation. Establishing solid labor management practices, automating repetitive tasks, and investing in training and development can drastically reduce labor costs, with a focus on greater productivity and quality standards.
Supplier costs
Costs related to suppliers include the outlays linked to acquiring raw materials, components, and finished goods. Commodity prices, exchange rates, and the type of supplier connections impact these expenses. Building reliable partnerships with trustworthy suppliers, bargaining for advantageous contracts, and investigating alternative sourcing avenues help handle supplier costs.
Technology costs
Purchasing supply chain management software, hardware, and other tech solutions usually requires a substantial initial investment. Yet, these tools deliver enduring cost benefits through process automation and enhanced visibility. The important part is to thoroughly assess the overall cost of ownership, encompassing implementation, training, and continuous maintenance, compared to the potential return on investment (ROI) in terms of enhanced efficiency, cost savings, and improved customer service.
Other costs
Many other expenses can affect total supply chain costs, which are often hidden from plain view. These often include taxes, duties, insurance premiums, regulatory compliance expenses, and costs related to returns and customer service. Although these expenses may appear minor when looked at individually, their combined impact can be significant.
Understanding the financial complexities of the supply chain is essential for businesses to achieve long-term profitability and efficiency. Identifying the primary cost drivers helps businesses to target areas for improvement that lead to savings. Now, let’s look at strategies.
Proven supply chain cost reduction strategies
Continuously reducing supply chain costs calls for a multifaceted strategy that involves automating processes, improving logistics, benefiting from data analytics, and fostering strong partnerships.
Using visibility for targeted cost optimization
Supply chain visibility platforms offer businesses a comprehensive, real-time understanding of their operations, allowing them to pinpoint and address problems that directly impact costs.
Resolving bottlenecks Real-time visibility facilitates the immediate identification of bottlenecks in transportation, production, or order fulfillment. Proactively addressing these issues enables businesses to enhance workflows, minimize delays, and reduce associated costs.
Enhancing inbound logistics With real-time visibility into orders and inbound shipments, businesses can confidently predict when goods will arrive. This allows for better planning of production and distribution schedules, minimizing storage costs and preventing costly disruptions.
Improving transportation Visibility into transportation routes and carrier performance provides useful information to consolidate shipments, negotiate better rates with carriers, or switch to more cost-effective transportation modes.
By utilizing visibility platforms, businesses can correct inefficiencies that have a direct impact on costs. However, optimization doesn’t end there. Proactively managing transportation expenses is another key area where visibility can have a powerful influence.
Proactive transportation cost management
Transportation costs make up a significant portion of total supply chain expenses. Visibility solutions come with various tools to actively oversee and minimize unnecessary spending:
Contract management and routing guide enforcement By ensuring that suppliers and carriers adhere to routing guides and contractual terms, businesses can reduce unnecessary expedited shipping expenses and avoid penalties for non-compliance. Visibility platforms offer the necessary oversight to enforce these agreements while identifying areas for further cost effectiveness.
Rating and bidding Visibility platforms enable businesses to compare rates across their carrier network and request spot quotes, ensuring they secure the most competitive price for each shipment. This dynamic approach to rate management can lead to significant long-term cost savings.
Freight spend forecasting A complete view of inbound, outbound, and third-party shipments allows for precise forecasting of freight spend. By identifying spending trends and potential issues, businesses can make informed decisions regarding carrier selection, route efficiency, and other cost-saving initiatives.
Cost reduction in supply chain management isn’t solely achieved through technology and data. Building strong, collaborative relationships with suppliers is equally important in driving down outflow and creating a more efficient supply chain.
Strengthening supplier relationships for mutual benefit
Visibility platforms strengthen collaboration as they provide a platform for communication, data exchange, and performance tracking. Mutual transparency cultivates trust and encourages a more trustworthy relationship.
Open communication channels Visibility platforms enable transparent and effective communication channels, leading to fewer misunderstandings, reduced lead times, and a collaborative approach to problem-solving.
Data-driven collaboration Visibility platforms grant businesses and suppliers access to current data on essential metrics. This shared data enables an unbiased evaluation of supplier performance, empowering both parties to pinpoint areas for enhancement and monitor progress over time.
Negotiation leverage Access to real-time supplier performance data allows businesses to recognize top-performing suppliers and reward them with increased business. Conversely, underperforming suppliers can be addressed proactively, leading to enhanced performance or, if needed, the exploration of alternative sourcing options. This dynamic fosters a competitive environment that motivates suppliers to deliver high-quality products and services at competitive prices.
Strong supplier collaboration, bolstered by transparency and collaboration, are a powerful tool in mitigating supply chain risk and reducing costs. However, to achieve true optimization and unlock the full potential for savings, businesses must also adopt advanced technologies.
Advanced technologies for cost management
Modern solutions improve operations and provide valuable insights, leading supply chain cost reduction and financial gains.
Data analytics Thorough historical and real-time data examination uncovers patterns, trends, and irregularities that highlight areas ready for change. This data-driven approach beats guesswork, encouraging strategic decisions.
For example, analysis of historical sales data can reveal seasonal demand fluctuations, allowing companies to proactively adjust inventory levels and avoid costly overstocks or stockouts. Similarly, scrutiny of transportation data can reveal unreliable routes or underutilized carriers, paving the way for efficiency gains that reduce fuel consumption and lower transportation costs.
Machine learning
Machine learning algorithms, a subset of artificial intelligence, efficiently analyze extensive volumes of supply chain data. They identify inefficiencies, improve processes, and even anticipate potential disruptions, continuously learning and adapting to become increasingly skilled at recognizing patterns and anomalies.
Blockchain
By establishing an unchangeable, decentralized record of transactions, blockchain ensures traceability and accountability across the supply chain, allowing for the tracking of goods, verification of product authenticity, and prevention of fraud. A transparent record of every transaction reduces the risk of disputes, errors, and delays.
Automation
Automation technologies transform repetitive and time-consuming tasks, and most supply chain tasks can be automated, according to KPMG. Examples of automation technologies making an impact on the supply chain include robotic process automation (RPA), autonomous vehicles, automated guided vehicles (AGVs), and drones. RPA streamlines back-office processes, autonomous vehicles revolutionize transportation, AGVs optimize warehouse operations, and drones offer innovative solutions for inventory management and last-mile delivery.
All these technologies working together creates a powerful force that extends beyond simple cost reduction. It enables companies to be proactive in their decision-making, transforming supply chains into resilient and future-proof operations. This opens doors for innovation, expansion, and maintaining a lasting competitive advantage.
Final thoughts
Leading supply chain visibility platforms, like Agistix, go beyond providing a window into your operations; they equip you with the tools to actively manage and reduce costs. Seamlessly integrating with various systems, including ERP, TMS, and WMS, Agistix delivers a cohesive view of all supply chain activities. This comprehensive, real-time visibility enables businesses to monitor shipments, track inventory levels, and recognize potential disruptions — all necessary for cost effectiveness.
Furthermore, Agistix provides in-depth financial visibility, allowing businesses to track freight spending, monitor routing guide compliance, and compare estimated payments to invoices, all in the service of better financial performance.
Want to see how Agistix can work for you? Schedule a demo with one of our supply chain visibility experts today.
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Author
Trevor Read
Trevor Read is the founder and CEO of Agistix, with over two decades of experience in SaaS, global supply chain, and logistics technology. Trevor is a results-driven entrepreneur who is passionate about leveraging big data to create scalable, fast-deployment solutions that empower businesses to optimize operations and seize new opportunities in complex, ever-changing markets.
