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By Bruce Tompkins Aggressively and intelligently, some of the world's top companies are realizing cost improvements in today's turbulent economy. Better still, most of these Supply Chain Cost Reduction strategies can be implemented with little to no capital investment and minimal resources. Supply Chain Consortium surveys show that sourcing, transportation, inventory and other key areas are ripe for cost reduction. Sourcing In sourcing, the use of vendor scorecards to monitor and track vendor improvements is one such cost reduction example. Recent data from Consortium surveys indicates that the most successful (top quartile) companies make extensive use of vendor performance scorecards as compared to other organizations.
Figure 1: Companies' Use of Vendor Performance Scorecards
Freight Another approach to improving vendor performance in order to reduce supply chain costs is through a rigorous process of reviewing vendor freight terms. Top performing companies consistently make review of vendor freight terms a best practice.
Figure 2: Vendor Freight Term Reviews
Lean and Six Sigma In manufacturing processes and across the supply chain, the adoption of Lean and Six Sigma tools is having a dramatic impact on operating costs and performance. Consortium companies say that the use of these tools is the most important factor for their cost improvement success.
Figure 3: Importance of Lean and Six Sigma Improvement Techniques
Transportation In the area of transportation cost reduction, there are several no-cost practices to ensure that you are getting the most value for your money. The first is performing frequent reviews of the transportation modes being used, and the second is benchmarking the rates for those modes. Taking action to use the most effective modes and carriers based on the review information can significantly reduce total transportation costs.
Figure 4: Transportation Mode Reviews
Figure 5: Benchmarking Transportation Rates
Outsourcing The many decisions involved in outsourcing supply chain functions continue to grow over time. Many companies outsource their distribution center (DC) operations to reduce cost and gain capacity without capital investment. Moreover, the Consortium survey data indicates that respondents typically prefer outsourced versus company-operated distribution facilities.
Figure 6: Outsourced Versus Company-Operated DCs
Inventory An often hidden but very real cost for most companies is the number of stock keeping units (SKUs) available for sale. A thorough rationalization of SKUs and actions to reduce their number can greatly impact costs throughout the supply chain. When asked about their plans for SKU growth for the next 3 years, more than 2 out of 3 Consortium companies see the number of SKUs increasing, and at an average growth rate per year of 8.9%. So, there is clearly an opportunity to get control of SKU proliferation and eliminate underperforming units.
Figure 7: SKU Growth Trends
Conclusion Achieving Supply Chain Cost Reduction goals in a turbulent economy is difficult, but not impossible. Your organization may want to explore the areas noted above for possible savings. To recap, some potential opportunities may include:
Pushing forward with cost reduction initiatives is never more important than when the economy is in a downturn. The key is finding innovative ways to reduce costs without major capital expenditures. All the while, be sure you are focusing on capital and operating cost aggressively and intelligently.
The Supply Chain Consortium is the premier source for supply chain benchmarking and best practices knowledge. With 180 participating retail, manufacturing and wholesale/distribution companies, the Consortium sponsors a comprehensive repository of 17,000-plus benchmarks complemented by search capabilities, online analysis tools, topic forums and peer networking for supply chain executives and practitioners. The Consortium is led by the needs of its membership and an Advisory Board that includes executives from Campbell Soup Company, Hallmark Cards, Hewlett Packard, Ingram Micro, Kraft Foods, Miller-Coors, The Coca-Cola Company, Target, and True Value Hardware. To learn more about how your company can become a member of the Supply Chain Consortium, contact John Foley, 919-855-5461 or visit www.supplychainconsortium.com.
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