Combatting Inflation in Warehousing and Logistics
The combination of inflationary pressures and continuing supply disruptions is driving the need for more resilience in supply chains. This cycle requires responses that combine new thinking with applied technologies and the more efficient use of labour and materials.
We need to find more cost-efficient ways of managing operational costs in our supply chains without damaging the quality of services provided. Everyone is being impacted by the current inflationary environment, from the raw material supplier through to the end consumer.
Although many economists expect a slowdown in the rising rate of inflation in the second half of 2022, we will continue to see supply instability, price rises, logistics disruptions and pressure on staffing.
The main input costs vary across industries. The major costs are labour, goods and services involved in manufacturing and distribution, storage and transport. As each of these costs rise, prices must rise. Rising input prices in a time of strong demand mean that consumers can tolerate a higher price. However, only some of the extra cost can be passed on to the consumer, impacting your company’s budget and profitability.
Finding Opportunities for Cost Reduction in Times of Inflation
Opportunities exist in devising alternative solutions, engaging with suppliers, the use of technology and streamlining of services. We can find savings in labour, supplier contracts and in energy supplies, including fuels, gas and electricity usage.
Spend Visibility
Do you have clear visibility into your current costs? The data you have may be incomplete and need cleansing before it becomes useful information. Now is the time to do a detailed spend analysis that will help you understand where the money is going. For example, you may uncover identical items that are purchased from multiple suppliers. This situation is a missed opportunity to leverage volume to achieve preferential pricing. Likewise, transport costs can be reduced through consolidation of carriers and streamlining of delivery routes.
Engaging with Suppliers
Opening additional channels of communication at all levels provides multiple areas of opportunity to combat inflation within existing supplier relationships. Collaborate with existing suppliers, and with your suppliers’ suppliers, on how to streamline products using alternative, cheaper materials for manufacturing and packaging.
What is your exposure to inflation in your contracts? Review provisions for price increases in existing contracts that include percentage escalations, or fixed price increases that are not linked to inflation. Investigate alternative sources of supply by approaching suppliers directly, or through competitive bidding. Volume aggregation not only leads to better pricing; it means fewer suppliers and simpler supplier monitoring. Consider ways to ‘inflation-proof’ new contracts to mitigate against future risk.
Logistics
Revisit your logistics strategy when it is evident that it is being impacted by inflation and is not operating at its maximum potential. An efficient logistics network responds better and more quickly to market disruption. The aim is to find the lowest annual overall cost of the distribution network that satisfies customer requirements. The Supply Chain Consulting Group (SCCG) provides a range of services to address areas of opportunity, including sourcing and contracting, inventory management, transportation and automation.
Labour and Automation
The shortage of warehouse employees has forced wages up and driven the move towards automation in Distribution Centres (DCs). The areas that are most impacted by inflation should be tackled first. Improvements in space allocation, physical layouts and the use of automated vehicles and equipment reduce human transit time, thereby reducing the number of employees needed.
Energy
Fuel, gas and electricity are critical input costs in manufacturing and distribution. Inflation and distribution challenges are continuing, requiring urgent attention. Suppliers are suffering the same impact as you, both are purchasers of energy. Energy efficiency improvement is an important way to reduce costs, especially in times of high energy price volatility. Five tips:
- Start monitoring energy consumption.
- Keep your equipment in good working condition and upgrade where required, to become more energy efficient.
- Take advantage of low consumption periods and tariffs for heating and lighting.
- Move to energy-efficient lighting.
- Look for ways to reduce wasted energy.
Technology
Digital solutions including analytics, artificial intelligence (AI) and mobile communications across warehouses and transport logistics mean better visibility and faster throughput. Distributors and retailers that leverage their data with applied technologies will respond to inflationary challenges better than their competitors. Automation and software solutions can deliver cost savings that will mitigate the impact of rising inflation.
Companies that can act swiftly to respond to inflationary pressure will stay competitive.
Sub-optimised supply chains often result in limited visibility, hidden costs and fragmented teams working against each other; consequently, where one cost is driven down, another is increased.
