You don’t have to compromise quality or performance to cut business costs. There are significant ways to save money without compromise. When it comes to optimizing your supply chain costs, the devil just may be in the details. Scrutinize internal and external processes, and you will inevitably begin to identify waste and opportunity. Assess the price impact of each and plug gaps or capitalize on opportunities for improvement to achieve true cost savings. Below, a compiled list of 7 key areas to help you get started.
1. Optimize Inventory levels
There’s no doubt that an increase in the quantity of ordered goods offers economies of scale. But are you comparing it against the costs of maintaining extra inventory? A balanced approach to inventory can save you space and investment. It can also address the risk of obsolescence or deterioration.
2. Rethink unnecessary tolerance
Most manufacturing business owners understand the importance of tight tolerances when required. But to put them on a print without a strong reason is just a wasteful expenditure of money and time. It helps to have a good understanding with vendors on why close tolerances needed and what a good is enough solution to the challenge.
3. Check for Incomplete, inaccurate or outdated BOM
An accurate, up-to-date bill of materials (BOM) is integral to making good purchase decisions and obtaining the most competitive pricing. If you haven’t been providing complete BOM details to suppliers early in the process then you could be hit with additional expedite charges on components with a long lead time.
4. Fix Incorrect Material Specifications
Even in modern manufacturing, material specifications tend to be defined incorrectly. Failing to correctly define specifications is a basic mistake that can lead to higher costs or misaligned expectations. When orders need to be reworked frequently, it shows that you could be facing two problems: one is a lack of clear, concise communication and the other is a process that needs to be streamlined.
5. Run Cost Comparisons
For immediate cost savings, consider changing your supplier to one with a more competitive proposal. The key here is to compare suppliers based on cost, experience and reputation. Make it a practice to regularly revisit and review contracts to determine which ones are no longer competitive and viable. The sooner you move on to economical and reliable replacements, the greater is your cost savings over an extended time-period.
6. Find Strategic Partnerships
Explore supplier partnerships that allow you to lock in a good, fixed rate over the long term. Negotiate blanket orders that offer favorable pricing for recurring components while also lowering administrative costs of processing frequent purchase orders.
7. Streamline Internal processes
Deploying flexible and agile systems that boost the efficiency of the ordering process can keep risk of excess inventory and costs in check. Implementing a single software that can be used by all employees/teams handling supplies and purchase is a potential solution. Another is a just-in-time inventory management system to pare down inventory and transaction costs. You can also consider automating purchase processes that decrease administrative tasks, remove invoice errors, and detect fraud early.
These are just a few of the most effective ways to streamline operations and achieve maximum efficiency. Begin by properly analyzing these 7 areas to determine which cost cutting methods are best suited for your operations, then set a plan for implementation and soon you’ll be well on your way to true cost savings.
At AR2, we have a template that we have deployed successfully to minimize the cost (small to large) and drive actionable plans to achieve the same. We would like to share our experience and help you save money in your business without compromising on the quality front.
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