Spend Matters welcomes this guest post from Daniel Martinez of GEP.
One the biggest challenges organizations face is to increase the service level and reduce cost simultaneously. The distribution of finished goods and raw materials are one of the main costs of the supply chain and customer satisfaction. Some organizations have a lack of understanding from the industry, products, market demand visibility and capabilities, hindering the leverage with the suppliers, which stops the profitability increase and cost reductions implementations, allowing providers gain hidden profits in its cost structure.
So, what factors should be identified to reduce distribution costs and service?
- The lack of demand visibility increases the number of suppliers used as backups to fulfill the service level and schedules agreed with clients. The development of weekly demand forecast allows selected suppliers to have a completed understanding from the required demand seasonality by the company, leveraging the shipment volume consolidated in less suppliers, decreasing cost and increasing the service level agreement. Combining this weekly visibility makes it feasible to use intermodal schemes with a significant cost reduction due to the seasonal rates offered by the companies that provide intermodal services.
- For truckload export projects, lead time is a key element, so find suppliers that can offer integrated services that includes customs brokers and door-to-door deliveries, which helps to significantly reduce lead time and increase the service level agreement, generating new schemes as direct delivery to the client from origin point, which allows mitigated inventory cost, inventory in transit, warehouse fee and full-time equivalent.
- The fuel conforms a large percentage of the cost structure. Therefore, understanding of the type of product loaded on the trucks makes it possible to perform an analysis of fuel efficiency LT /KM considering the weight, product size (for consolidation process), year, etc.
- Other key elements for cost reduction initiatives are conditions/requirements standardization regarding the market enabling suppliers to participate and understand specs cost, which allows companies to identify inefficiencies and reduce requirements that inflate cost.
- Look for dedicated schemes “round trip,” or make synergies with the finished goods and raw material transportation avoiding backhaul cost.
By considering the details and implementing optimization strategies, the companies can obtain substantial quantitative and qualitative benefits than could make us more attractive to our clients.
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