How to Reduce Supply Chain Costs Without Compromising the Level of Service

Imagine if your boss knocked your door and asked if you can reduce the companies supply chain costs by 5% in the coming six months, while at the same time, increasing levels of customer service by 3%. This is not unlikely—a lot of companies are now carrying out a balancing act between service and cost as they seek to become more accurate, efficient and connected.

When under pressure to reduce costs, temptation can lead to making reductions on price exclusively without taking into account the impact this will have on levels of service. The goal should be to create the perfect balance between service and cost, and here’s what you can do in order to achieve that balance.

1. Prioritize Planning. The value of a carefully constructed plan, including forecasting, can never be underestimated, with this you will receive benefits when it comes to the costs involved with labor, storage, transportation and systems. It’s worth taking the time to plan ahead. Predictable outcomes can lead to better levels of efficiency, and are usually more effective than increased volume. Having the foresight to anticipate one-off events or seasonal occurrences will provide the capacity for managing space and labor requirements more effectively, ultimately leading to greater control over costs.

2. Aim for the Lowest Cost Overall. The first lowest price you find may not necessarily provide the best value over the long term. All variables must be analyzed in order to understand total cost and recognize where potential savings can be made. In doing this, you must also consider where cost cutting will have the least effect on standards of customer service. If this seems like an overwhelming task, attempt to create a ranking system for expenses and dedicate attention to the most pertinent. In most cases this will lead to looking at transportation.

3. Resist Temptation to “Over Serve.” While customer service is important, many companies go overboard in this area. In order to avoid this, it is important to understand exactly what is important to the customer and make sure these demands meet with the provisions being made.

4. Every Dollar Must Count. All investments of capital should meet or go beyond expectations around ROI, flexibility and growth. Before you commit to build a DC or take a lease on a warehouse, look into whether 3PL (third party logistics) will be more cost effective.