The 5 Main Causes Of Supply Chain Costs

Posted by Andrea Wilson on May 27, 2021 11:20:00 AM


For your business to thrive in the post-Brexit and post-pandemic environment, your supply chain must be cost-effective. However, in order to make improvements to it, you'll need to identify how much you're spending and where that money is going. Let's discover how you can analyse your supply chain costs and manage your operations more economically.

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How To Identify Your Supply Chain Costs

The simplest way to fully understand your current expenditure is to produce a supply chain cost model for your company. This is a visual representation of the data you hold about these costs. To do this, you'll need to conduct a total cost analysis. Total cost analysis in supply chain management refers to an assessment of every direct and indirect cost that your company incurs during the life of the products or services that you provide. The figure that you arrive at for each unit is known as the total cost of ownership (TCO). The aim is to reduce the TCO without disrupting your supply chain or compromising the quality of your product or service.

The Main Types Of Costs In Supply Chain Management

1) Facilities and resources costs

Purchasing or leasing premises can be an expensive business and these costs need to be taken into consideration. You'll also need to take your staffing, equipment, and utilities costs into account.

2) Procurement and production costs

These will usually include expenses such as:

  • The cost of raw materials and parts;
  • The machinery and tooling required to manufacture your products;
  • Machine maintenance and repair costs;
  • Outsourced manufacturing costs.

3) Inventory management costs

These include the costs associated with:

  • Storing your stock and ensuring that it's secure;
  • Moving it into, out of, and around your warehouse;
  • Picking and packing items;
  • Purchasing, running, and maintaining your warehouse management system (WMS);
  • Dead stock – including damaged items, waste, returned products etc.

4) Transportation costs

These include the costs involved in transporting parts and raw materials from your suppliers to your business premises, and delivering your products to your customers.

5) Administrative costs

You also need to include the costs of dealing with legislative and regulatory matters, handling orders, billing customers, and paying suppliers when performing your analysis.

How Working With Hone All Can Make A Difference

One of the most effective ways of reducing your supply chain costs is to ensure that you're working with the right suppliers.

Hone-All can purchase fully traceable material and machine your components complete for you, so you can keep your in-house facilities, procurement, and production costs under control. We're based in the UK, so you won't need to worry about the transportation and administrative costs involved in overseas shipping, or about international delivery delays that could impact your inventory management costs.

Our service is impeccable, our deliveries of the highest quality and speed, and our costs minimised by carrying out all of our operations in-house. To find out more, call 01525 370666 or contact us online.

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