An efficient supply chain keeps all aspects of your business running smoothly. If you’re a manufacturer, you’ll have access to all the components you need—when you need them—to meet your delivery dates. If you’re a retailer, you’ll find it easy to keep the flow of inventory to your stores constant. And no matter what business you’re in, a supply chain that runs smoothly allows you to deliver consistently on the promises you make to your customers.
On the flip side, however, inefficiencies in your supply chain can cost your business in big ways. You might see symptoms like longer transit times on critical shipments, increasing your inventory carrying costs. For manufacturers, this could cause delays on the assembly line, which can push delivery dates. For retailers, delayed shipments might mean running out of stock, driving your customers elsewhere for their needs.
And that’s just the tip of the iceberg: A recent study suggested that supply chain inefficiencies cost UK companies up to $2 billion a year.
After helping our clients streamline their shipping and warehousing operations, we’ve spotted three common types of supply chain inefficiencies. If you suspect you might need to improve the way your supply chain operates, ask yourself these three questions to see if these inefficiencies might be costing your business money.
Question #1: Are You Backtracking?
When we sit down with a new client to review their supply chain, one of the first things we look for is backtracking.
In other words, do your shipments have to travel certain segments twice to get where they’re going?
Let’s look at an example from a retail scenario:
Let’s say you order a shipment from China. It comes through the Port of Long Beach, CA, then gets delivered to your warehouse in Chicago. Then, you pick the order and send it back to a customer in San Diego.
That inventory has now crossed half the country twice, and it’s costing you in a few ways:
- You’ve paid to move it from Long Beach to Chicago, then back to San Diego.
- You’ve added significant transit time during that backtrack. So, depending on when your customer makes the payment, your cash may be tied up in inventory for a longer period of time.
- Ultimately, you’ve increased your inventory carrying costs while this order has been crisscrossing the country.
An alternative solution? If you’re doing a significant amount of business with China or another Pacific market, you could open a warehouse and fulfillment center on the West Coast to receive shipments and pick orders.
You could also hire a freight forwarder to receive those shipments on the West Coast for you. They could maintain some inventory for you to sell to western destinations and send some to your warehouse in Chicago for onward transit to East Coast destinations.
In either of these scenarios, you’d minimize the backtracking that’s costing you money, keeping you from fulfilling orders efficiently and generating sales revenue efficiently.
Now let’s look at a second scenario that shares some similarities but adds a second nuance.
Question #2: Are You Ignoring Hidden Costs to Save a Few Dollars on Freight?
When you’re pricing out shipping scenarios, it’s important to keep in mind that the shipping cost is only one element of your overall supply chain management cost. If you’re focusing solely on the shipping cost by itself, you might be missing the bigger picture and costing yourself money.
Here’s one way we often see this play out:
East Coast operators who are ordering from Asian-Pacific markets may be offered the option to either:
- Send their freight across the Pacific and through the Panama Canal via steamship line to an East Coast port.
- Send their freight directly to a West Coast port like Los Angeles or Long Beach, then move it to the East Coast via truck or rail.
In certain scenarios, option #1 may be cheaper. And if you’re solely focused on freight costs, you might automatically choose that option.
However, you may want to consider option #2 for two reasons:
- Depending on your final destination, shipping via the Panama Canal may cause backtracking, the consequences of which we discussed in question #1.
- Going through the Panama Canal almost certainly takes longer, which means:
- You’ll have to hold that inventory longer before you can sell it or use it, which can cause cash flow issues.
- You’ll need to make sure your inventory management strategies are in top shape since it will simply take longer to replace items you run out of.
- Additionally, because of longer transit times, any hiccups in the supply chain could create a ripple effect that may impact your ability to deliver a final product to your customers.
So although the Panama Canal scenario may look like the cheaper option, you’ll want to take your overall supply chain management cost into account before you make that decision.
After all, when you choose more efficient delivery routes, you’ll increase cash flow, reduce stocking issues and give yourself more flexibility in managing your inventory.
Question #3: Is Your Central Warehouse Making Your Business Sluggish?
In our experience, we’ve seen many companies who operate in the Hawaiian Islands with a setup similar to the following:
The company maintains a central warehouse—often on Oahu—and ships all goods to that location. Their staff at the warehouse unpacks and sorts the incoming shipments, then they re-sort the inventory. Goods are re-routed to other locations on Oahu and packed for ocean transit to Maui, the Big Island and Kauai.
Does this scenario sound familiar to you?
While it’s been the traditional way of doing things in the Hawaiian Islands for a long time, this method creates inefficiencies.
- It increases transit time to other islands by forcing goods to make a stop at the central warehouse on Oahu first.
- It requires a company to devote significant labor and storage resources to its central warehouse.
- It can increase the cost of transportation because the inventory has to be trucked to the warehouse for sorting, then sent out for delivery or re-routed back to port for ocean transit.
One solution? Leverage your freight forwarder.
Instead of shipping everything to Oahu and sorting it out there, a West Coast freight forwarder could receive your goods, sort them for individual locations and ship them directly to stores on Maui, the Big Island, Kauai and Oahu.
This solution can:
- Shorten your transit times.
- Reduce your labor and storage costs at your central warehouse.
- Decrease the overall cost of transportation since your freight won’t have to backtrack at any point along the route. It will go straight to the location that needs it.
If you recognize this scenario in your business, talk to your freight forwarder. A few small changes in your procedures could significantly reduce these efficiencies. And if your freight forwarder hasn’t even mentioned the potential for streamlining your processes, maybe it’s time to find a new freight forwarder.
Reaping the Rewards of a Streamlined Supply Chain
Although these three questions are by no means the only way to spot inefficiencies in your supply chain, they’ll give you a good start. If you can reduce backtracking, get a handle on your entire supply chain cost and eliminate inefficiencies that can be created by a central warehouse, you’ll be on your way to increase cash flow, boosting profits and cutting expenses to create a financially healthy business.
Want to discuss streamlining your supply chain? We’d be happy to help! Just reach out to us and we’ll schedule a discovery call with one of our logistics experts.