U.S. President Harry Truman is said to have once jokingly asked aides to find him a one-handed economist. Apparently the ones briefing him were fond of saying “on the one hand…” but then also “on the other hand.”
Yet, here we find ourselves again with an economy that suggests multiple, conflicting strategies for manufacturing supply chain professionals. On the one hand, excess transportation capacity continues to rise, according to GEP’s Global Supply Chain Volatility Index.
The latest report showed global transportation costs at their cheapest since 2016 and spare capacity in supply chains at a record high since the financial crisis years of 2008-9. So, that suggests it’s a good time to renegotiate rates and harvest savings. “Companies have greater leverage to negotiate favorable terms from suppliers for 2024 and 2025,” GEP Vice President, Supply Chain Consulting Jonathan Kinghan told Supply and Demand Chain Executive magazine.
On the other hand, demand is weak—even more so in Europe than North America, as inflation pressures take their toll on buying decisions. As post-pandemic supply kinks normalize, safety stockpiling has fallen below long-term averages and shortages ease.
So, how do supply chain professionals find cost savings in this lower cost—but also lower demand—economy?
How To Optimize Your Supply Chain Costs for a Leaner Balance Sheet
Here are a few tips to, ahem, give you a hand:
- We agree that it’s a great time to review transportation pricing and lock in new contracts where appropriate. But that doesn’t mean you should abandon strategic relationships to play the spot rates. As we have pointed out previously, it’s well proven that contracted rates beat the spot markets over the long term. They also decrease the costs of running RFPs, maintaining visibility and managing vendors.
- There’s never been a better time to build a control tower visibility strategy. If you feel like you’re behind in this area, think again: Only six percent of manufacturers say they can see what’s going on in their extended supplier network. While tech tools require resources, the bar for connecting supplier information is getting lower and cheaper.
Our own ChronosCloud platform, for example, leverages existing data and systems. Using online integrations, cloud-based data normalization and internet-enabled sensors (the so-called Internet of Things), we’re able to build solutions that deliver results quickly, while also laying a strategic foundation for the future. - Look for supply chain cost savings across business units. Many times, different groups in an enterprise send trucks along identical routes. By collecting RFPs and analyzing utilization, you can find areas for collaboration and consolidation.
- Take a “whole process” approach to determining supply chain costs. Overall cost is much more than just rates and weights. It should take into account carrier damages, reliability, and flexibility to add or reduce volume.
Also, consider calculating what an ocean or air carrier makes on inland transportation if you’re currently buying on a door-to-door basis. It may be cheaper to switch to “to port” rates. You may even be able to cut supply chain costs by consolidating freight from multiple carriers for the last-mile ground movement to a factory or distribution warehouse. - Avoid the inventory whipsaw. The U.S. Commerce Department reported a second straight month of declining inventories in July. Not long ago, those same warehouses were bulging with goods as they overcorrected for the previous pandemic-related shortages. There’s constant tension between adequate supply and a lean balance sheet.
These days, it also seems there’s another disruption waiting to upset any balance. Leading enterprises are looking for alternative solutions to maintain buffers without the financial hit. Vendor-managed-inventory is a tried-and-true approach, but that pits your interests against your suppliers. In our own practice, we have also pioneered supply chain finance solutions like Inventory On Demand™, an innovative way to outsource ownership of goods until they’re needed for sale. - There’s no doubt, even as prices ease, that significant challenges remain for supply chain professionals. It helps to have experts in your corner, analyzing your current processes, streamlining data and helping you manage what seems to be never-ending change. If you’d like to talk with one of our solutions architects, let us know. Morgan has built custom-tailored transportation solutions, control towers and inventory solutions for the world’s most admired manufacturers—including two of Gartner’s Supply Chain Top 10 enterprises.
We would be happy to learn about your current practices, goals and challenges. Because, on the other hand, it’s always a good time to reduce your supply chain costs.
