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Supply Chain Management for cost reduction

  • By faber
  • October 11, 2019

Did you know, one of the world’s biggest producers of dried fruits was able to achieve a 30% reduction in finished goods spoilage?

Over a decade ago, one of the world’s biggest producers of dried fruits discovered that while they were managing distribution operations well, high production costs were boosting end-to-end supply chain costs.

When the management checked into the organization’s production cost problems, they recognized that their organization’s distribution channel played a partial role in boosting the supply chain costings. As a result, the organization started looking for redesigning the network to reduce some of the production costs.

Later, it was found apart from the distribution channel, the demand forecasting was also a reason for cost increment. The organization was using a manual forecasting approach along with spreadsheets which were the only technology involved.

The inefficiencies of this approach proved not only to hinder effective forecasting and production planning, but the hammer-effect was the excess of warehouses in the network. This is why forecasting proved to be both a driver of production cost and a key to improving the distribution network. 

Implement Supply Chain Management for Cost Reduction

Hence, implementing the supply chain management for cost reduction helped the organization solve all its cost related issues. The company when finally initiated supply chain planning and planned its improvement program to make use of each of the solution modules in sequence, allowed ROI to be realized in phases as each module was implemented and leveraged.

At the same time, the organization implemented a sales and operations planning program. This enabled plant resource requirements to be anticipated months—rather than weeks—in advance. As the overall improvement plan passed through its five phases, positive results accumulated and as hoped, the ROI reached 100% even before the company completed its full implementation.

The objective of the organization’s improvement program was not only to achieve a 100% return on investment in its supply chain planning platform. The goal was to reduce production costs, and although the company hasn’t published hard figures to quantify the total financial gain, it has claimed almost 20% increase in forecast accuracy, a 17% reduction in overtime in the production facility, 30% reduction in finished good spoilage, the number of warehouses were reduced from 25 to 8, transportation cost remained stagnant for two years straight except for varying fuel rates.

Hence, as you can see, supply chain management can help you reduce ample amount of costs. However, at the root of high costs, there will usually be one major factor needing innovation, whether it’s the network, inventory strategy, working relationships with supply chain partners, or some other element s of your operation. So, have you implemented supply chain management at your organization?