It’s a fundamental law of business—the price of any product is directly related to the cost of its production. And while production costs immediately conjure thoughts of materials and labor expenses, the efficiency of the supply chain still wields major influence over a product’s final shelf price, with carrying costs being a prominent contributor.
Carrying costs, expenses related to storing products that are waiting to be sold, encompass a lot more than just the fees from leasing the warehouse. They also include utility expenses, additional employee wages, general maintenance and upkeep, facility security, and the opportunity cost of not holding new products on your shelves, among many other things. And those numbers can add up fast—cutting deeply into the bottom line.
With the right planning and forethought, carrying costs don’t have to be sky high. Here are a few ways that shippers can bring their carrying costs down—and give their supply chain a boost.
Poorly managed warehouses are often a major contributing factor to higher carrying costs. If a company cannot accurately keep track of how much product it has on hand and where in the warehouse it’s stored, the entire supply chain can fall apart.
Improved layouts and more conscious planning can help companies make the most of the space they’re already paying for. Smart warehousing practices, like using specialized computer software and automation, can also help give warehouse and supply chain managers a more complete overview of the costs associated with warehousing products, helping them spot opportunities to save.
Lead times can be reduced with better forecasting—and this in turn decreases those pesky carrying costs.
Just-in-time (JIT) inventory is a management technique that lowers overall costs by reducing the amount of held inventory. With this approach, inventory is brought in and shipped as close to the customer’s desired acquisition date as possible, limiting the amount of time it’s held by the supplier and minimizing carrying costs.
In order to implement a JIT strategy successfully, a company first has to be able to predict customer demand with a high degree of accuracy. Tracking inventory and sales in real time enables managers to spot trends and fluctuations, adjust inventory levels in response to seasonality, and continuously hone their demand planning.
Harness the power of a TMS
While there are numerous ways to reduce costs along the supply chain, reducing carrying costs should not be overlooked. Rather than accepting carrying costs as sunken costs, companies can better manage their inventory and improve their shipment planning with the right transportation management system (TMS).
A fully integrated TMS enables shippers to base their inventory replenishment on actual demand, rather than hunches. It also helps streamline operations at the warehouse, improving visibility and ensuring trucks get in and out quickly, avoiding costly delays and wasted man hours. This results in a more efficient, cost-effective warehouse—and money back where it belongs, in the bottom line.
Cut costs up and down the supply chain. Contact us today to learn more.