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Battling the Rising Cost of Raw Materials & Production
10 Things You Can Do To Counter Rising Sourcing Costs
There’s Not Much You Can Do to Stop Rising Sourcing Costs
Retailers and brands face an uphill battle. Just as the economy begins to show signs of life and retailers prepare to rebuild inventory levels, we’re seeing rising production costs. Prices for cotton have doubled in the last year. Lumber prices in May were 79% higher than last year. Concerns about rising costs of raw materials, labor and transportation continue to come up on earnings calls. What can be done about it?
You can’t lower the price of raw materials or labor. But with prices rising it’s more important than ever to get your own costs down. Overhead costs, processing costs, capital costs… look across your supply chain – into the extended network of parties and layers involved. There’s room for efficiency and savings. Now is the time to address it.
There’s certainly low-hanging fruit within every supply chain that can be addressed. Start with the foundation of your transactions, your purchase order. Examine each handoff within the supply chain. How does it occur? Is paper prevalent? What’s your cost to transact? What about credit and financing… what interest rates are your suppliers in Asia paying?
Getting started can be an overwhelming task. But here’s where you can begin.
10 ways to reduce your costs and become more efficient to counter rising costs of raw materials and labor:
10. Conduct a Paper Assessment:
Look closely at your supply chain and identify areas where paper exists. POs, invoices, amendments, settlements, letters of credit and financing… Where there’s paper there’s errors and inefficiency.
9. Change How You Transact:
How do you communicate with your trading partners? Email? Fax? Phone? EDI? Find a more efficient way to communicate and, more importantly, collaborate with your network of trading partners. Flexible technology and services available today make it possible to connect and transact with your entire ecosystem in one place. This eliminates data re-keying and manual tasks but also ensures accuracy and efficiency. Instead of entering data your staff can be focusing on more important things, like your business.
8. Allow Your Suppliers to Take Advantage of the 3,000-Pound Gorilla:
As the giant in your supply chain you’re financially stronger than most trading partners involved in the transaction. Help them out. Your suppliers in regions like Bangladesh and Turkey might be paying 12 – 15% interest rates. Allow your suppliers to take advantage of your credit rating. Offer early payment invoice
discounting programs that help suppliers get paid quicker. If you fund it yourself, you can offer 7 or 8% rates and both sides win.
7. Go Direct:
Cut out layers in your supply chain by shipping direct to store. Cross-docking and other programs can bypass the DC to eliminate costs and deliver goods in less time.
6. Stay Close to the Source:
Perform customization or other services overseas instead of bringing them back in-country and finishing production or storing domestically. Reducing inventory held domestically can generate huge savings.
5. Don’t Go It Alone:
Eliminate overseas resources and staff by finding the right partner to support your supply chain. The right partner has support and presence wherever your suppliers are and can ensure they’re connected to your system.
4. Diversify Your Portfolio:
Spread out your risk and exposure to rising costs overseas. Work with trading partners in different regions. If China is expensive look to Vietnam. Or Europe. Or the Americas.
3. Consider Near Sourcing:
Take advantage of the sourcing hub right in this hemisphere. Central and South America offer an alternative to Asia that is worthy of serious consideration. Trim weeks off of your shipping time. Reduction of cycle times and shipping costs can rapidly justify the move to near sourcing.
2. Keep Your Options Open:
Find ways to connect with new suppliers, service providers and financial institutions, as you need them. An online collaboration platform can offer connection into an entire network of resources.
1. Seek Low Risk, Low Investment Solutions:
Software-as-a-Service and Cloud Computing models are ideal for today’s complex supply chains. Avoid on-premise implementations and headaches. There’s no need to lock into heavy investments. Look for solutions that can connect you to your partners with as little burden on your technology and operations staff as possible.
Prices will continue to go up. You can't lower the price of raw materials or labor but you can find ways to lower your costs and get ahead.