19 Aug Uncovering hidden costs in your supply chain and turning them into competitive advantage
There’s nothing like a global pandemic to give you the nudge you need to reassess your business. This is particularly true of the UK manufacturing sector, which is being urged from all areas of Government and commerce to rethink their supply chains, consider onshoring, digitise operations and boost efficiency.
It’s an easy enough thing to advise and, on paper, a straightforward business transformation. However, in reality, such drastic steps require a deep level of thinking and to be successful such decisions must be made based on real-time data pertaining to existing supply chains and expenses.
You may think you already operate a successful supply chain model. After all, if your purchasing team is accessing the right material from suppliers, your logistics team is keeping track of deliveries and customers receiving their orders on time, surely there’s no problem? As with anything in life, you never know what you don’t know and while your supply chain may be operating successfully, you could still be losing hundreds or thousands of pounds in a supply chain financial black hole.
Increase your awareness
The first step to eliminating hidden supply costs is identifying them. At APS, we’ve built a powerful tool that helps manufacturing organisations harness Big Data to improve cost margins without expensive, on-cost or pernicious fees. It delves deep into your cost and balance sheet to lay bare your costs and expenditure so you can better understand where spend is being wasted.
Why is this important?
You may regularly purchase raw materials from a Tier Two supplier for the overall cost of £250. Your expenditure sheet may show this as a total raw material cost. However, that supplier is unlikely to be based in the same street or neighbourhood as your factory, which means further costs will be incurred when actually moving the material. If your supplier is based overseas, then there will also be freight and handling charges associated with accessing the raw materials – not to mention costs that end up wasted once currency has been converted.
Furthermore, unless you operate a just-in-time production process, the materials will have to be stored in a warehouse before they are taken to the factory, incurring double the transportation cost. These small costs can add up and it’s a similar trend throughout the supply chain. Understanding where these costs are being wasted and how to streamline them is the first step to regaining control.
Often, transportation costs are not factored into the actual cost of goods and are therefore hidden within transactions. Every day materials remain in storage in a warehouse incurs further costs that are not accounted for up front. Costs can also be wasted when it comes to processing job orders and purchase orders. Understanding where these costs are being wasted and how to streamline them is the first step to regaining control.
Costs that are more important than financial value
When we talk about hidden costs, we often refer to financial wastage but supply chains also play host to hidden costs that could damage the perception and values of your business. It’s important to understand some of the human and environmental costs that may be hidden in your supply chain. For example, is there a risk of IP loss or infringement when working with suppliers that do not share your values? Only recently there was media speculation surrounding slave labour being exploited in a factory in Leicester, which has done considerable reputational damage to all businesses involved in that particular supply chain.
Empower your enterprise
When we show manufacturers exactly where their costs are being wasted, the information is always met with surprise, as it also begins to paint a picture of business risk. For example, it may be that a significant percentage of your goods inwards is dependent on a volatile territory – China for example. Or, you may have a European warehouse facility that previously enabled you to benefit from favourable tariffs but which, following the UK’s abandonment of EU regulations at the end of this year, could end up incurring even more hidden costs.
Once you have all your business expenditure laid out in front of you, you can use this data to make more informed decision, empowering decisions that could significantly enhance your bottom line. For example, you may decide you need to take action to reduce the spread of risk from multiple geographical suppliers; you may be able to start considering a more effective logistics strategy where goods travel a smaller distance; or you may decide that onshoring is a more cost effective strategy moving forward.
Become a master of supply chain spend
Once you start to identify where costs are hidden in the supply chain and take action to recover them, you can start to make a noticeable difference to the balance sheet. For example, a simple task such as reviewing the payment terms you have with existing suppliers can enable you to further streamline and consolidate ongoing costs. For example, requesting credit payments on 90-day terms gives you a period of time where payments can sit in the bank and earn interest, creating small wins that add up to make a big difference over a financial year.
A transparent and optimised supply chain is the key to manufacturing competitiveness. Not only does it ensure your customers get what they want when they want it, it also ensures a steady and consistent flow of money throughout different industries and geographical locations, benefitting several sectors and economies.
By identifying and eliminating the hidden costs lurking in your supply chain, you can begin to pivot your business focus into new areas and gain a competitive advantage even when trading conditions are challenging.
To take the first step towards optimising and streamlining your supply chain, contact me for an initial assessment using our unique i-QMN supply chain data insights tool.