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GUEST COMMENT Look beyond cost of manufacturing to unlock cost-savings

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Manufacturers looking to save money by reducing their costs of manufacturing (CoM) these days are discovering it’s like trying to squeeze blood from a turnip. Yet all hope is not lost. Opportunities abound for most companies to cut their costs – and improve their bottom lines – when they take the time to consider their net landed costs of goods (NLCOG).


NLCOG is comprised of two key components:

1) CoM
2) Cost of Distribution (CoD)

 

As previously mentioned, the former – which for many years was the industry’s primary means to reduce NLCOG and increase profit – is now a dead horse; every possible optimization has been squeezed from this process. Meanwhile, manufacturing costs are skyrocketing because:

 

  • Manufacturing production has been rising since the mid-2016. The output is now up 4.2% since
  • May 2016 and up 22% from a recession low in June 2009.
  • U.S. manufacturing unemployment is at its lowest level in 15 years. Supply simply can’t meet the demand, and wages are increasing.
  • Labour and materials in emerging economies have reached price levels that are strangle-holding CoM reductions in the US.

That’s the bad news. The good news is that CoD is stepping up to replace CoM as the new cost-savings champion for manufacturers. To determine the potential of CoD savings, manufacturers need to answer one question: Does my CoD represent a significant portion of my NLCOG?
If the answer is “yes,” opportunities abound to reduce overall costs and boost margins.
If the answer is “no,” the opportunities might be fewer and maybe less substantial, but they are no less real.


Identifying Savings Opportunities in CoD


To unlock CoD savings, a Transportation Management Solution for parcel shipping can be a manufacturer’s most valued ally. Why? Because a TMS solution designed specifically for parcel gives manufacturers choice – and control of their entire shipping operations. With a TMS for parcel, companies can rapidly and automatically determine the most efficient shipping option for each package they ship, factoring in delivery deadlines, carrier rates, performance and other key shipping considerations. As a result, they are able to achieve substantial CoD reductions in four key areas:


1. Carrier portfolio management: To drive CoD savings, two benefits of a TMS for parcel should top shippers’ wish lists: rate-shopping and rate simulation. Both enable greater and more informed choice in carrier selection, and when manufacturers have the capability to onboard new carriers quickly, the savings come just as rapidly. Costs also go down when companies can perform “what if” analyses – in real-time -- to identify lower-cost delivery services and shift shipping volumes accordingly.


2. Fulfilment processing: By identifying labour-intensive steps that can be automated with technologies, companies can not only slash labour costs with a TMS for the parcel, but also deploy workforces more strategically. In other words, companies can achieve the dual benefit of saving time in the order-fulfilment process, along with saving money in terms of both shipping costs and workforce optimization. A TMS for parcel also delivers CoD savings by enabling savvy shippers to plan for transportation spikes. They can, for example, anticipate large volumes of shipping on weekends and holidays when their customers are at home and offer those customers incentives to place their orders instead on the days when shipping volumes typically taper off.


3. Error reduction: By leveraging technologies such as barcode scanning and parcel shipping software, manufacturers can not only ensure that orders are fulfilled based on accurate, real-time data, but also eliminate unexpected costs and revenue-draining fees and fines resulting from common shipping errors.


4. Lost opportunities: No company likes to lose business, yet 29% of customers won’t place an order from an online store if their order gets shipped incorrectly – or never delivered at all. In addition, a single negative online review can cost the average business an additional 30 customers. To thrive long-term in the online arena, manufacturers need to prioritize accurate order fulfilment.


So how can companies capture these four opportunities? Technology like Transportation Management Systems for the parcel – especially those with low barriers to entry and easy scalability, enable businesses to reduce CoD. Automating carrier and rating decisions, carrier-compliant shipping labels, and bills of lading and packing lists reduces costs, and detailed reports can help improve customer service and the online consumer experience. Some businesses may already have beneficial tools in place to reap some of these benefits, but it’s important to ensure they’re being used properly and effectively.


Whether through technology – which can greatly simplify the process – or manually, an audit of CoD and shipping processes will enable manufacturers to identify potential areas of savings.


CoM reductions are tapped out. How about the other side of NLCOG?

 

Author: Ken Fleming, president, Logistyx

Image credit: Fotolia

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