Any tips for how to reduce end-to-end supply chain costs while not sacrificing quality?

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The overall costs may vary based on various factors - for example, temporary disruptions, macroeconomic changes, fuel costs, supply/demand disruptions, labor disruptions, etc. Early technology adoption focused on visibility from the first mile to the last mile providing Order Progression, Inventory Movement, and Financials Analysis, which can provide insights and help reduce costs through analysis, continuous improvements, and optimization.

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Here are some tips to reduce end-to-end supply chain costs:

Embrace automation: Improved IT systems and automation can help reduce supply chain management costs in terms of both data processing and operational costs. Automation does not require a significant investment in robotics.

Implement sales and operations planning tactics: This can help you better forecast demand, optimize inventory levels, and reduce stockouts. I would recommend this course to learn from basics to advance implementation (https://www.scmdojo.com/academy/courses/how-to-run-a-sop-process-benefits-process-steps-overcome-barriers)

Manage shipping and transportation costs: You can reduce transportation costs by consolidating shipments, optimizing routes, and using more efficient modes of transportation.

Reduce touchpoints for order processing: This can help you reduce labor costs, improve order accuracy, and speed up order fulfillment.

Consolidate suppliers: Companies may be able to reduce costs by consolidating their supplier base, which can help to streamline the procurement process and negotiate better terms with fewer suppliers. This blog of supplier segmentation will help https://www.scmdojo.com/supplier-segmentation.

Leverage technology: Companies can also use technology to improve their supply chain operations and reduce costs.

I hope this helps!

Answer

The global economy and general way-of-life depends on semiconductors so we cannot subvert quality for the sake of cost in any event. However, we are looking at procurement a little differently today than we did before the pandemic. We are partnering more with our suppliers to bring more innovation to Intel vs. just relying on negotiating price, volume, and mix.

Innovation equals value-add and comes in many forms. Our supply base could help us improve specs for the products we buy, increase productivity by adding new modules for software, or streamline processes with new manufacturing tools.

We also use strategic sourcing to help reduce overall supply chain costs. We work with the supply base to craft pricing clauses that guarantee us the best price. We also negotiate longer contracts or different types of contracts with other non-traditional licensing agreements.

Lastly, we use center-of-excellence (CoE) models in parts of our supply chain where we can reduce and streamline redundancies in function and/or process. For buyers, contract management, program management, etc.

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Automation should be considered as a subsequent step following visibility and process improvement. It's important to prioritize visibility by checking the “pipes” and assessing value add versus waste. Once the root cause has been identified and addressed, automation can be pursued (as an example)

When it comes to cost savings initiatives, they often focus on EBIT savings and primarily target the supply function. This is because it's considered the "easiest" single node EBIT relevant function, and it doesn't require significant organizational changes. To put it another way, it makes sense to prioritize negotiations with the supply base and working capital improvements in the short term before diving into S&OP (Sales and Operations Planning).

However, it's important to note that cost cutting without a clear strategy and performance management in place can be risky and shouldn't be seen as a shortcut.

For example, reducing transportation costs without considering the impact on service levels or quality can be detrimental. Instead, linking transport costs with the overall supply chain strategy can lead to supply chain differentiation. This involves segmenting customer expectations based on factors such as lead time, service level, cost to serve, assets, and flexibility, allowing for cost reduction in areas where customer expectations are not compromised or where customers are willing to pay a premium.

A turnaround team would do exactly a mix: short term momentum savings, clear portfolio strategy, supply chain services and capabilities for a sustainable / profitable business setup.

Please let me know if you need further help.

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I think this question needs to be extended as answer depends on:
1. Are you ready to make upfront investments to make proper turnaround
2. What are the levels of urgency and appetite to make dramatic changes - do you have a time?
and
3. Availability of resources and supporting infrastructure to deliver on cost cutting measures
As example, if urgency is focused on "now", you certainly do not have time to strategize on this and focus is on quick wins. So for these more effective cost reduction levers should be identified etc.

Answer

Honestly you should do a review of your Supply Chain and where the costs are coming from. Also consider what are your real goals.

Consider something simple like a bottle of water. There are 3-4 components. First you have the water itself, the bottle, the label and the cap. You also have transportation costs.

If you want to reduce the supply chain cost of this item you should first look to see where the costs are and at least as importantly where the value is. If its a generic bottle of spring water, you just need to make sure that you get water from a spring. Perhaps you've built a brand or a myth about a specific spring, in which case you can't move away from that. You also need to look at branding. If its generic spring water then a generic label, bottle and cap will do in which case you'll be selling a mostly undifferentiated product. On the other hand if you have claimed a specific spring water source then you might need a better label, bottle, bottle cap etc. In either case you'll need to deal with marketing as well. The issue with customers is that the reason they buy your product isn't necessarily the reason they state when you ask why they buy your product.

Onto something helpful. There are many types of goods but one of the axis you can use for differentiation is weight gaining vs. weight loosing. Let's say that you have a raw material, X that you process into product Y and sell. The question to consider is whether after processing does the output gain or loose in weight. As an example you could have a piece of stone that you carve, in this case weight loosing. You'd want to do the carving as close to the quarry to minimize transportation cost. On the other hand you might use the stone as a decorative accent on a large piece of furniture, in which case you'd move the stone closer to where the furniture will be sold.

Its important to know what your firm wants to do. Some bad examples I've seen. Firm A will partner with Firm B and outsource somethings that Firm A used to do. Firm A wants the job done cheaply and will move the work to another supplier easily. Firm B took on the task with the intention of selling value added work. In this case there is a potential conflict. Firm A wants the lowest cost supplier whereas Firm B wants a relationship.

Also remember that costs can't usually be eliminated but they can be passed on to another party. The classic example was when automobile manufacturers discovered Just In Time and Lean. They stopped carrying parts but required that their suppliers must be able to provide parts quickly. In short, the Big 3 stopped carrying inventory and simply made their suppliers do it.

Lastly, sometimes it can make sense to bring the work inhouse and vertically integrate, in other cases it does not. Much of this depends on what the firm is prepared to do and how much its prepared to spend. Different tasks require different scale to be profitable. Suppose you're a small candy manufacturer. You can have your own truck and do deliveries yourself. You only deliver one day per week. In this case it probably makes sense for you to hire a different firm and have them do your shipping instead of you doing it.

Things like EDI, etc. have helped to reduce costs related to manual labor but often you still need to have a human get involved. Suppose if there are 100K transactions and 100 people working on them. Chances are that 60K+ will sail through just fine and probably only require 20 staff to look after them. The next 20K will have some escalation and other issues and there are probably 30 staff to look at this. The final 20K are the difficult/problem children and chances are that at least 50 people are required to look after them. Sometimes its easier to fire these customers, sometimes not. Often these difficult clients have unique needs/demands and catering to them can be an issue. Sometimes they pay well, often on a net basis you don't get enough. Sometimes these are the ones who carry the more niche line offerings you offer.

My final advice, figure out what the real ask is. Then see where the costs are coming from and which ones are value add and which ones are not. Lastly look at your customers as well and it might make sense to let some go. Having done something like this in the past we discovered that there was a small group of customers who were not large but required a lot of customized care.

Any tips for how to reduce end-to-end supply chain costs while not sacrificing quality?

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