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Best way to cut supply chain costs

November 28, 2013
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Will Butler-Adams cannot “big up” exporting enough. The managing director of Brompton Bicycles, which has exported 43,000 folding bikes so far this year to 44 countries, knows how vital it has been to the success of his business. But he also believes there’s a perception that exporting is hard to do.

“When you’re exporting and you’re a little company, you’re putting your precious baby out there,” he says. “Whichever suppliers you’re exporting to, as far as the consumer is concerned, they are you. You always need to exercise the necessary due diligence.”

Shipping goods across continents, on time and in one piece, is vital to building a strong brand and boosting sales. Failure to achieve the basics has big implications. “If we make a bike for someone in Japan and it costs them £1,000, the tiniest little scratch means they are not going to be happy,” Mr Butler-Adams says.

Companies can haemorrhage money if they pay insufficient attention to the cost of logistics. “This is not a core competence of most companies and the cost to consumers of inefficient logistics is spectacular,” he says. “There is so much money to be saved by taking the time to look at logistics.”

The first place to start is the business supply chain. “Companies need to look at what they are doing well and not well,” says Mark Knowlton, of the Manufacturing Advisory Service. “Understanding where the costs are, where the value-added activity is and where the waste is – it’s about recognising where you are going to get the biggest savings.”

Fuel use and carbon emission reduction in export freight are two prime areas for efficiency savings, according to the Chartered Institute of Purchasing and Supply (CIPS).

Removing any fixed costs for transport is essential to allow for increased flexibility to react quickly to fuel price fluctuations. But there is also money to be saved by co-buying with other organisations, even competitors. A number of companies share their loads, including Nestlé and United Biscuits.

For Fracino, UK manufacturer of espresso and cappuccino machines, transporting its products to markets, including Italy, with other companies by sea is a no brainer. Managing director Adrian Maxwell says: “Damage has not been an issue for us. Once in, nothing moves in the container, although we do hear of damages from air freight.”

CIPS reports that sea transportation has also become more popular than air freight because of reduced fuel costs. Also, one logistics firm has a rail service between China and the Netherlands which takes about 28 days – it’s faster than travelling by sea and cheaper than air freight.

A company’s most appropriate method of transportation will depend on the nature of the products and their destinations. “We want to have the flexibility of suppliers who can deliver to a location that is perhaps not standard,” says Rowan Crozier, sales and marketing director of Brandauer, which manufactures precision metal components for original equipment manufacturers and exports 75 per cent of its products across Europe and the US. “It’s not always about cost – it’s quality of service and the ability to transport and deliver to locations that aren’t always easy to get to.”

The company’s stock is valuable – non-ferrous metals, such as copper and brass, coated in silver – and has a shelf life, so Brandauer cannot have fully stocked depots waiting to be exported. It gets suppliers to enter into consignment stock agreements – when stock is stored on its site or nearby – but is owned by its suppliers. “We pay for it as we use it,” Mr Crozier says.

Exposure to rising commodity prices cannot always be managed so Brandauer has to focus on the “low-hanging fruit” of packaging and transportation to cut costs. “We benchmark prices for these every six to twelve months,” he says. At the buying stage, a competitive bidding strategy is a must for any exporter.

Haggling is a major part of controlling supply chain costs and central to Daniament’s strategy. The manufacturer of lights for lifejackets, lifebuoys and life rafts cannot always wait to maximise the use of freight space and reduce cost, especially because it produces potentially hazardous goods – lithium batteries. Specialist freight providers are needed to handle the company’s goods.

“We partner with a few major shipping companies, which specialise in shipping lithium batteries,” says general manager Kevin Rough. “Many have long-term relationships with airlines and understand the industry, and the most effective and efficient ways of getting goods to the customer. But finding reasonable freight charges is still a challenge.”

Most of the company’s exports are done on an ex-works basis – its customers pay for the freight, and Daniament either arranges transportation and charges them or they book it and pay themselves. These kinds of arrangements can bring costs down considerably.

The right information technology can be critical in reducing what companies spend on transport. Software packages used to cut tracking costs can pay dividends for exporters. Logistics providers have their own programmes, but exporters themselves can also make savings with their own bespoke systems.

All of these strategies rely on effective relationships with the right kinds of suppliers. “Although costs are critical, technical knowledge of the sector is also important,” says Mr Rough. “Costs can always be haggled, knowledge cannot.”

Relationships are crucial at the beginning, throughout the contract and at regular intervals. As CIPS says: “Just don’t take your eye off the ball.”

 

Author: Anna Scott

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November 28, 2013
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