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Supply Chain Strategy: How to Reduce Overhead Expenses

Michael Wilson | Feb 9, 2015

Inventory management always has certain costs that are necessary to attain great performance: from software design to the time that employees spend dealing with inventory ...

supply chain strategy

Inventory management always has certain costs that are necessary to attain great performance: from software design to the time that employees spend dealing with inventory concerns, managing supplies effectively takes an investment.

However, many companies are spending more than necessary on managing their inventory. Did you know that the standard inventory carrying costs are 25% of the value of the inventory on hand? Carrying costs are just one example of how your supply chain overhead can eat into your revenues.

By following these tips for minimizing overhead, you can execute your supply chain strategy in a more financially efficient method:

Consider Your Energy Costs

One of the easiest ways to cut down on overhead while also helping to conserve limited environmental resources is to invest in alternate technologies for lighting and HVAC related to your supply chain. For example, a commonly targeted area for getting greener in the supply chain involves warehouse lighting. Research shows that in the United States, lighting and space heating combined make up over 75% of annual electricity usage in warehouses.

To reduce your warehousing costs, you might invest in a more efficient lighting system that can turn itself off automatically when no one is around, or new fans and heaters that don’t use as much electricity. These are some of the more common ways to improve your energy costs, but there are plenty of others available depending on which areas of your supply chain are using the most energy.

Monitor Your Supply Usage

Office supplies might not seem like a large expense, but some of the more expensive supply products can add up to cost hundreds or even thousands of dollars every month. Consider ways that you can decrease this number so that you don’t have to spend as much money on supplies. Is there a more cost-effective type of supply that you could purchase instead of the ones that you are using now? You might also think about switching to a paperless system for some of your recordkeeping so that you can spend less on ink and other costly printing supplies. Even a few minor adjustments to these parts of your supply chain strategy can have a big positive net in the long run.

Track Your Costs Effectively

You should be sure that you have a way to keep a record of your costs so that you can analyze them over an extended period of time and see if any trends have developed. Ideally, you will want your costs to remain the same or decrease, if possible. Look at some of the areas where your costs are the highest and then work on creating a systemic plan to reduce expenses in those areas. If you don’t know where you are spending the most money, it is hard to improve your supply chain.

According to global consulting firm Bain & Company, prominent companies who have the most efficient supply chains like Dell and Toyota spend over 50% less on their supply chain than average performers. That’s why companies with great supply chain management are frequently the ones that succeed, and with a few adjustments to your supply chain strategy, you can make your business into one of these success stories as well.

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