FIRST, FIND YOUR SUPPLY CHAIN COST DRIVERS
Transportation, procurement expenses, quality, and inventory are all known supply chain costs that are usually addressed head-on. Nevertheless, hidden expenses that are amassed within these areas, on the other hand, can be severe.
Even more difficult, because the supply chain is so intertwined, resolving one problem can have unintended consequences that are not obvious until it is too late. The real kicker is that if addressed properly, hidden costs can also be hidden opportunities to increase profitability.
It is easy to recommend on paper, a simple business transformation. However, in actuality, such severe measures necessitate significant thought, and to be effective, such recommendations must be hinged on real-time data about current supply chains and costs.
Anything that makes it difficult for items to travel easily from one link within the supply chain to the next is a supply chain barrier. This includes outdated border policies, bad roads, and tight local-content regulations. Unforeseen supply chain constraints can lead to a variety of hidden costs, many of which intersect among the broad categories identified above.
Depending on the product, you may additionally incur costs connected to quality assurance measures, such as needed site inspections. The potential brand damage caused by poor quality is reason enough to suspect there may be hidden costs in this area.
Inventory Management Cost
Given that 43 percent of small businesses handle inventory mechanically or not at all, there might be a lot of hidden inventory management costs. These include interest charges on money borrowed to pay for idle inventory, maintenance costs for company-owned equipment, storage infrastructures, and warehousing prices in various places, specifically those near ports or other high-cost areas, among others.
Depending on the location of the products being acquired, transportation costs can have a significant impact on supply chain costs. The form of transportation employed, the delivery of the product to your selected destination, and the volume of product that can be delivered in each load are all factors that influence transportation costs.
For example, when you choose a more expensive means of transportation to hasten delivery for some reason—such as a supply chain disturbance that disrupts the intended schedule—hidden costs can be produced. Or when you don’t maximize capacity utilization due to inefficiencies in packing, such as not putting sufficient products into each shipment.
While the expenses of purchasing products from vendors may appear straightforward, there are several complexities involved. For example, someone in your firm must select the correct supplier, secure contracts, monitor supplier performance, and ensure payment according to agreed-upon terms. In this light, hidden costs can include technology systems and employee salaries.
WHAT COMPANIES CAN DO RIGHT NOW
In the meanwhile, companies cannot afford to wait for government assistance. To be competitive, they must immediately recognize hidden supply chain costs and integrate thorough due diligence into their decisions about where to manufacture and sell their goods.
Become More Aware
Identifying hidden supply costs is the first step. You can consistently buy raw ingredients for $300 from a tier two supplier, a total raw material cost may appear on your bill. However, the supplier is unlikely to be in the same street or community as your facility, resulting in additional costs.
Unless you employ just-in-time production, the materials must be held in a warehouse before being transported to the factory, which would double the transportation cost. Small costs build-up, and this is true across the supply chain. The first step to restoring control is to identify wasteful costs and streamline them.
Boost Your Business
You may utilize the data about your hidden supply chain cost to make better-informed decisions that could improve your bottom line after you have all your business expenses in front of you. For example, you may decide to lessen the risk spread from multiple regional suppliers, or you may determine that outsourcing jobs are a more cost-effective option going ahead.
Consider Other Hidden Costs Beyond The Financial Value
In addition to financial losses, supply chains can harm an organizations’s image and ideals. It’s critical to understand the environmental and human consequences supply chain. Is there a threat of IP loss or litigation when collaborating with non-value-sharing suppliers? Recent media speculation about slave labor in a plant in Leicester has harmed the reputation of all businesses connected in that supply chain.
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Wilson, M. (no date) Uncovering hidden supply chain costs (and how to reduce them), Uncovering Hidden Supply Chain Costs (and How to Reduce Them). Available at: Hidden supply chain costs (Accessed: October 20, 2021).
Wood, M. (2020) Uncovering hidden costs in your supply chain and turning them into competitive advantage, LinkedIn. LinkedIn. Available at: Hidden supply chain cost (Accessed: October 20, 2021).