5 sure shot techniques to reduce costs in the retail supply chain
Creating a highly competitive retail supply chain depends on how well you’re able to control/reduce your costs. Incurring unnecessary costs can mean that your processes aren’t efficient enough, your funds are blocked in too many fixed assets, or your supply chain isn’t performing at an optimum level. These factors could pile up costs, impact margins, affect your competitiveness, and eventually make your business falter.
Keeping costs under control is therefore one of the most essential aspects of supply chain management. Let’s look at 5 sure shot techniques that can help you reduce your costs:
1. Localize fulfillment
Transportation accounts for about 40 to 50 percent of logistics costs, and 4 to 10 percent of the selling price of final products. Reducing the distance between your warehouse and customer clusters is, therefore, necessary to control overall costs. The closer your warehouse, or fulfillment center, is located to your customer cluster, the quicker fulfillment will be, which also means a significant reduction in fuel consumption. Regional Utilisation (RU), the idea of fulfilling maximum orders locally, is one of the topmost solutions for cost management in supply chains today.
RU becomes even more effective when coupled with new-age merchandising solutions. Powered by data insights, this enables brands to conduct Pincode level analysis to place the right products at the right warehouse, or store, as per demand in a particular market. Shelving the right styles and size combinations can boost regional sales significantly while saving costs on logistics.
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2. Rethink warehousing!
As a brand expands, operating from a centralized warehouse can raise distribution costs and impact business quite significantly. In fact, as per Logistics Bureau, up to 12 percent of companies are unprofitable after distribution costs are taken into account.
This can be tackled with Distributed Warehousing which enables brands to expand into other regions, and support efforts toward regional fulfillment. Fulfillment of orders from various local and widely distributed warehouses is quick and cost-effective.
Technology solutions like Increff Cloud warehousing allow brands to rent out spaces based on regional requirements. This means investment in warehouse infrastructure is not required and brands are able to convert CAPEX into OPEX thus controlling their overhead costs. In recent times, this has been further augmented with the rapid rise of 3PL players with whom brands can partner for renting warehousing spaces and adding value to the supply chain.
3. Manage manpower costs
Costs incurred due to human labor is another significant portion of your expenditures. These include their wages, training and development costs, costs incurred in hiring additional/ad hoc labor during peak season sales, and adjusting manual errors committed by the workforce.
With new-age WMS and merchandising solutions, brands can successfully avoid a lot of unnecessary labor costs and reduce errors in decision-making. Simple UX/ UI facilitates easy training which is extremely useful during crunch times when the technically skilled workforce is scarce or expensive. The ease of use increases the fungibility of staff and maximizes the use of the available workforce.
Automated solutions ensure continuous, seamless workflow with minimum decision-making errors. Digitizing inventory through serialization allows easy scanning of individual pieces of inventory for efficient tracking and reduces training time to 5-10 mins. This minimizes efforts and costs related to elaborate training and development of the human resource operating the system.
4. Make data-backed decisions
Holding on to obsolete inventory can add up to 25 to 30 percent more to the unit cost of your products. Besides, the capital tied up with this inventory could account for about 15 percent of opportunity costs. Obsolete inventory is mostly a result of the inability to forecast demand accurately.
However, new-age merchandising solutions backed by relevant data enable brands to create product assortments with the right styles and sizes. This helps them meet the customer demand perfectly, without causing problems of overstocking or under-stocking, both of which impact costs, the former causing wastage and the latter calling for in-season redistribution.
New-age solutions facilitate analysis of future demand over a time horizon of the next season or business year. Analyzing past sales data helps create a favorable estimate of the upcoming season stock requirements so the right quantity can be placed in the right location. Manufacturing the right quantity as per demand avoids overproduction, unnecessary expenditure, and resource wastage.
5. Use multiple channels for order fulfillment
Last mile connectivity is known to be the costliest part of the supply chain and accounts for about 53 percent of the total shipping costs. This calls for transforming order fulfillment through omnichannel retail, which is a fluid vision of fulfillment that allows customers to receive their orders in the faster possible time.
Fulfillment options like Buy-Online-PickupIn-Store (BOPIC), store fulfillment, curbside pickup, home delivery, etc. are getting popular. Conversely, a customer visiting a store who is unable to find the desired product can make use of the ‘endless aisle’ online option to purchase it and get it delivered at home or the nearest store. This doesn’t just offer immense customer ease, but also allows brands to resort to the most cost-effective fulfillment option.
Cost control is the first step towards business process efficiency and with the above-given tips, brands can simply rule the roost among their competitors. Effective cost control has great benefits for not just the business stakeholders, but also the environment and society at large.