4 signs that your supply chain is more costly than necessary
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The CEO of any business will of course always be looking at ways to cut costs, and while companies with a sizeable logistics operation will by default look at streamlining their supply chains, even smaller businesses can benefit from the following four principles.
Every company, no matter the size, has a supply chain of some form and the ways to cut costs from it may not be as straightforward as other aspects of the business.
Use the following 4 questions to tell if your company could optimize their supply chain.
1. Do you work with a wholesaler or trading company, instead of a factory? If you’re working through a wholesaler or trading company, you’re probably adding 30% to your supply chain costs. Generally speaking, that’s the margin these companies will make.
Going directly to a factory reduces costs and also gives you more supply chain visibility. If something goes wrong in production, trading companies will often point blame to a factory and if you don’t have a direct connection to that factory, you’re probably not going to come to a reasonable solution with those stakeholders.
2. Are you becoming more knowledgeable than your sourcing agent? Most retail start-ups are going to initially rely on another expert to analyze the manufacturing capabilities of the factory being used. As the company grows, however, this agent will play an increasingly vital role.
When you get to a certain size, it’s going to make more sense to bring this role on in-house, as these sourcing agents often take their own margin.
3. Do you have little knowledge of your component costs? Every product is made up of different parts, every factory has its own supply chain. In order to have a full grasp of your supply chain, you should know how each part is made and the cost of each one. If you’re looking to cut costs, knowing this will help you understand where there is room to save some money.
4. Do you misunderstand the balance between price, quality and lead times? In a perfect world, a company could manufacture products, or have them manufactured, for the lowest price, at the highest quality, and in the fastest time. Unfortunately, that isn’t the case and a company’s supply chain is a balance between these three concepts, that are often at odds with one another.
When sorting through how to improve your supply chain, it’s important to understand this dynamic as you can’t make all three of these traits perfect. What you can do is look at your supply chain from a bird’s eye view and see how all three are correlated. By doing so, you may be able to adjust attributes like adding a two hours testing window to decrease your defect rate.