January 2015 | Commentary | 3PL Line

Six Secrets to Controlling Supply Chain Costs Without Sacrificing Service

Tags: 3PL, Warehousing, Supply Chain Management, Logistics

Tom Patterson is Senior Vice President, Warehouse Operations, Saddle Creek Logistics Services, 863-665-0966

It's Monday morning. Your boss knocks on your office door to tell you to cut five percent of your supply chain costs in the next six months, while improving performance on customer service scorecards by three percent. This balancing act between cost and service is becoming more common as companies seek ways to do more with less.

When pressured to reduce costs, you may be tempted to focus exclusively on price without considering service impacts. But take a look at the big picture. How can you best achieve an optimal balance between cost and service? Here are six secrets to success:

  1. Make planning a priority. Never underestimate the value of careful forecasting and how it can impact storage, labor, systems, and transportation costs. Take time to look ahead. Predictability often drives more efficiency than increased volume. Anticipating one-time events or seasonal spikes allows you to better manage labor and space requirements—giving you better cost control.
  2. Target lowest overall cost. The lowest price may not result in the best long-term value. Analyze all variables contributing to your total cost to identify potential savings opportunities. Consider where you can make the most impact while upholding your customer service standards. If that seems overwhelming, rank your expenses and focus on the biggest piece of the pie first. For many companies, that is transportation. Whether it's optimizing cubic footage for shipments or pooling buying power for dunnage, small initiatives can pay big dividends.
  3. Don't over-serve customers. Some companies go overboard to satisfy customers. Learn what is important to them and align your service solutions with their priorities. For example, don't send all shipments by express or next-day air if some of your customer base would be satisfied with two-day ground.
  4. Make every dollar count. Any capital investment should meet or exceed considerations for return on investment, growth, and flexibility. Before building a distribution center, or commiting to a long-term lease, it may be wise to utilize a third-party logistics (3PL) solution until you are sure of your needs. The same advice applies to technology investments. Explore all options and make sure that your technology spend will effectively serve your business needs.
  5. Build flexibility into your network. When evaluating distribution, consider what changes might occur in the foreseeable future. What if business grows or shrinks dramatically? What if e-commerce becomes a priority? What if you require packaging or fulfillment capabilities? Seek out distribution partners who can evolve with you—even if the front-end cost is slightly higher.
  6. Keep communicating. Help in-house associates and logistics partners understand your business goals and clearly outline service expectations. Keep them up to speed as your business changes. They must understand your priorities so they can make effective recommendations for continuous improvements and cost savings.

Thinking Outside the Walls

As you strive to balance cost and service, an experienced 3PL can sometimes be a valuable ally. A partner can provide resources, economies of scale, new ideas, and best practices when you don't have them in-house. With a little help from your partners, and these six supply chain secrets, you'll have a head start on meeting the challenge when you get that Monday morning knock on the door.