Since COVID-19 struck, manufacturers have had to cope with a fresh array of obstacles, from persistent supply chain delays to an inflation crisis. Companies across all sectors have followed the rise in prices with rapt attention—seeing production and shipping costs increase with them.
Price hikes began when pandemic-related supply delays and subsequent global goods shortages met soaring demand. But high rates have continued with ongoing port bottlenecks and new geopolitical conflicts. In the face of inflated supplier and carrier costs, manufacturers must find efficient ways to maintain their budgets—or face severe blows to their bottom lines and customer relationships.
Devise a strategy to combat the inflation crisis
Annual inflation has soared worldwide, reaching 40-year highs. Trade sanctions from the Russia-Ukraine war have burdened European economies and sparked global consequences. In response to the inflation crisis, central banks around the world have dramatically increased interest rates. And in September, the U.S. Federal Reserve raised interest rates by 0.75% for the third consecutive time.
While these efforts may successfully slow inflation, higher interest rates will also act as a growth obstacle for manufacturers trying to ramp up sales volume through business loans. As greater borrowing costs and demurrage and detention charges threaten to eat up supply chain budgets, manufacturers can employ the following strategies to lower logistics spending.
- Turn to technology for carrier negotiations
Carrier contract negotiations are a crucial cost-saving area. According to Josh Miller, CTSI-Global’s Vice President of Sales, “Without the tools to negotiate contract rates, companies have to go to the spot market for pricing. These costs are often higher than negotiated rates.”
A transportation management system (TMS) enables seamless carrier negotiations by providing visibility into critical supply chain data and updated carrier rates. With a TMS, supply chain managers can quickly analyze proposed rates based on carrier capabilities and current shipping needs, as well as compare rates to those of previous carrier contracts.
- Consider centralizing or decentralizing manufacturing facilities
Reorganizing manufacturing facilities can transform manufacturers’ bottom lines. Centralizing manufacturing—going from several decentralized facilities to one large facility—lowers the cost of producing goods through economies of scale. Additionally, centralization usually involves higher-volume orders from a single supplier. With larger orders, manufacturers can take advantage of bulk purchase discounts and save money on materials.
However, centralization isn’t for everyone. For manufacturers whose shipping lanes are subject to pricing volatility and delays due to geopolitical conflicts, national lockdowns, or other destabilizing events, decentralizing manufacturing can provide greater savings.
Decentralization—maintaining smaller manufacturing facilities across a wider region—limits exposure to regional volatility. If material costs increase significantly in one location, manufacturers can mitigate risk by increasing production at a facility with lower supplier rates.
- Switch to regional supply chains
By shifting from global to regional supply chains and moving supply lines closer to designated markets, manufacturers can shorten the path between pick-up and drop-off. This switch not only decreases the risks and impact of global supply disruptions, but also lowers transportation costs.
With ocean freight and air travel costs on the rise, increasing regionalization can lower carrier costs and provide some protection against destabilizing events that result in supply shortages and inflation.
Turn to cost-saving efficiencies when prices climb
Rising prices are eating up transportation budgets. As with any business obstacle, the key to surviving this inflation crisis is action: implementing strategies and tech solutions, such as a TMS, can reduce costs and promote growth.
Our proprietary TMS, Honeybee TMS™, lowers logistics costs and automates supply chain coordination. With tech-fueled logistics support, supply chain managers can better understand supply costs and drive profits through load optimization, carrier comparisons, real-time tracking, and more.
Contact CTSI-Global to start saving when—and where—it matters.