Optimising supply chain costs [Part II]

More and more companies outsource a part or much of their operations. The two most outsourced functions are transport and warehousing. It is considered that cost savings can be achieved through outsourcing activities. It may not always be so unless that outsourced company is more efficient than the main company in carrying out the functions. Besides, cost savings, outsourcing helps companies in quick expansion and provision of technology, space and other resources. It also helps if outsourcing is not a core activity of the business, rather is a distraction, or if the business requires flexibility in resourcing, outsourcing can help through access to specialised equipment, skills or technology. If the company can get the service specification right, which includes elements such as volume of delivery, frequency, or packaging or temperature control, then issues such as poor services, high costs and misaligned expectations can be avoided.
Asset utilisation

Businesses should be able to gain more productivity out of fewer assets. As a rule, more the assets are used within 24 hours, the better it is for business operations. Underutilised or non-utilised resources such as inventory, vehicle fleets or facilities mean poor return on investment for the business. This can lead to pressures on the business operations.
The way to deal with assets is to change the way they are used, owned or leased. For instance, businesses provide additional warehousing capacity during festivals to handle the seasonal peak in demand. The payment is only for the additional capacity for a month or two instead of the whole year. This helps businesses to control their costs and provide for the customer expectations efficiently and effectively.

Performance indicators

Businesses should be able to strategically weigh what is more important so that they are able to manage and improve it. The end game objectives of the supply chain need to be managed regularly and consistently so that there are realistic targets set for improvement. Then the business needs to choose the corresponding Key Performance Indicators (KPI) so that the performance can be measured in comparison to the targets. These performance measurement indicators also need to be embedded into the culture of the organisation in keeping with the objectives of the business.

It is important to note that different businesses have different KPIs. What may work for one may not work for the other. The businesses can be assured that they have chosen good KPIs when they are recognised in the organisation as relevant and meaningful, they are used for driving performance improvement, KPIs are tracked and understood across functional departments and the supply chain performance is improving.

Not all of these factors may be applicable to businesses but even finding ways of improvement in the application of two or three of these factors in a business can be beneficial in the long run. The basic principles of effective supply chain management which are defining the right company objectives and strategies, understanding customer needs, execution of strategies and measuring the results are still applicable.

#procurement #automation #businesstransformation #efficiency #bestpractice #digitization #vendormanagement #outsourcing #riskmanagement #protaiga

Author – Aval Sethi, Founder

Aval Sethi is the founder & CEO of ProTaiga and is based in New Delhi, India. As a result driven entrepreneur, Aval leads Business Transformation and Procurement Automation initiatives focusing on new-age innovation for businesses through his company.

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