06 June 2016

Cost reduction levers through integrated supply

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Australian supply chain companies are working hard to compete in a highly competitive global market place and reducing costs their number one challenge. Typically companies have reduced costs by refining their manufacturing processes and through close management of their direct materials. Manufacturers have done a good job building efficiencies and direct material, those items which are part of the finished product, which represent most of the product cost.

Smart companies are realising they can reduce costs even further by focusing on their indirect materials. These items include safety supplies, hand and power tools, cutting tools, and maintenance equipment. While indirect materials make up only 5-10% of the manufacturer’s expenses typically they take up a further 80% of their procurement activity. Purchasing therefore is one of the key strategic areas for generating competitive advantage and value creation. In addition, significantly lower prices, improved cash flow, and a streamline supply chain often offer an opportunity to improve plant efficiencies and reduce costs.

In order to realise corporate savings and growth targets, numerous strategic and operational levers need to be applied in the area of procurement. For example, globalisation has led to increasingly complex supply chains and cost structures, which require corporations to rethink their existing processes and relationships. Future success depends on the introduction of new concepts for efficient procurement.

Take for example; DHL’s key objective is to be the first in fashion delivery. In order for this to occur, they need to ensure their operational set up meets demands for excellence and become more knowledgeable about the retailers they work with. Much of that will be achieved through DHL dynamically changing their cost based through the whole supply chain and importantly changing the way DHL’s customers manage their buying processes that can really help take DHL to the next level.

Online continues to be growing at a rapid rate. Retailers have to look closely at their online capabilities and stay ahead of customer expectations. Consumers are increasingly becoming more demanding and with that place a huge challenge on our retailers around how they differentiate themselves on the high street.
A fundamental change that DHL is pioneering is to move processing offshore back up the supply chain to the point of manufacture, take advantage of cost efficiencies in those developing markets, to take advantage of the consolidation efficiencies and select products later so that only the right fashion appear in the retail market.

The future of supply chain is very exciting. The need to meet growing demands and understand how customers are changing, and aligning it with your operational goals is critical to the success of your supply chain business.

The best part of my job as a Conference Production Manager is to create and manage my own conferences from concept to delivery, identify future conference topics as well as giving me a chance to expand my business card collection. Having a bit of a sweet tooth, you will always find me having lollies on my desk or you will catch me browsing on fashion sites during lunch breaks.

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