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Home > Operations Management Best Practice > Reducing Costs through Production and Supply Chain Management

Operations Management Best Practice

Reducing Costs through Production and Supply Chain Management

by Vinod Lall

Collaboration

Collaboration in a supply chain focuses on joint planning, coordination, and process integration between the firm and its suppliers, customers, and other partners such as the logistics providers. In addition to cost reduction, collaboration offers the advantages of business expansion to other areas, increased return on assets, improved customer service, reduced lead times, increased reliability and responsiveness to market trends, and a shorter time to market. Several options are available for achieving collaboration in a supply chain. These include:

  • systems that transmit information between partners using technologies such as fax, e-mail, electronic data interchange (EDI), or extensible markup language (XML);

  • systems such as electronic hubs and portals that facilitate the procurement of goods or services from electronic marketplaces, catalogs, and auctions;

  • systems such as collaborative planning, forecasting and replenishment (CPFR) that permit shared collaboration rather than just a simple exchange of information amongst the supply chain partners.

The three systems identified above offer different levels of benefits and are associated with varying levels of expected costs. Organizations need to examine and quantify the benefits and costs of the alternative systems before selecting an appropriate system.

Case Study

Transportation Analysis Pays Off for Computer Products Firm

A leading US manufacturer of computer accessories makes many products in China and then funnels them into a single distribution center on the West Coast that serves hundreds of retail clients. The company contracted with various freight services to send the products to retail customers using different modes of transportation, including small-package air, small-package ground, less-than-truckload, truckload, and heavy-weight air freight. The company wanted to have a better understanding of transportation processes and to control transportation costs. To do so, it hired the services of UPS Consulting (UPSC).

UPSC undertook a careful analysis and helped the manufacturer to reduce its domestic transportation costs by approximately 30% by the following means:

  • negotiation of better rates with new freight service providers;

  • setting up a returns program with a single carrier that picks up and returns the product using the most cost-effective transportation mode;

  • development of a user-friendly one-page guide to carrier and mode selection that matches the weight and size of a parcel shipment with the preferred shipping method;

  • helping employees to understand shipping parameters;

  • establishing a compliance system that requires weekly meetings to review shipping activities and handle any special issues that arise.

Conclusion

This article has explored major sources of cost savings in a production and supply chain and identified some techniques used by supply chain personnel such as buyers, inventory managers, and transportation planners. The techniques identified were discussed by grouping supply chain processes under the common supply chain drivers of procurement, design of the supply chain, inventory, transportation, warehousing, and collaboration.

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Further reading

Books:

  • Chopra, Sunil, and Peter Meindl. Supply Chain Management: Strategy, Planning & Operations. 3rd ed. Upper Saddle River, NJ: Prentice Hall, 2006.
  • Jacobs, F. Robert, and Richard B. Chase. Operations and Supply Management: The Core. Boston, MA: McGraw-Hill/Irwin, 2008.

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