Running a business means keeping an eye on big-picture economic trends. That hasn’t exactly been fun lately, between the 8-9% inflation and the possibility of a recession on the horizon. Many business owners have been looking for ways to save money, with a special focus on supply chain costs, which have been well above normal lately.
There are good reasons to focus on supply chain costs. For one, the cost of container shipping by sea had at one point more than tripled compared to mid-2020. On top of that, parcel shipping prices have gone up, especially via the United States Postal Service. Fortunately, even amid what seems like utterly unavoidable price increases, there are a lot of things businesses can do to save money on supply chain management.
- Optimize product size and weight.
Of all the ways a business can save money on supply chain costs, one of the most effective ones is deceptively simple: reduce product weight and size. While this takes considerable effort and time to act on, it’s well worth it in the end.
Reducing even an inch or an ounce from the size of a product can dramatically reduce the cost of freight shipping and the aggregate cost of shipping individual items in the mail. Often this can be accomplished by finding the lightest possible packing material to use inside product packaging, effectively reducing weight.
Similarly, if there is any empty space inside product packaging that can be removed without risking the items breaking in transit, consider doing so. Inches and ounces add up quickly.
- Avoid air freight.
Freight shipping has been in the news a lot lately since the beginning of the COVID-19 pandemic. Sea shipping prices skyrocketed while delays added weeks to the already-long stretch of time it took for sea shipments to come ashore. For a while, air shipping was looking attractive. Normally, air shipping is 5-10 times as expensive as sea shipping. For a while, there wasn’t much difference in price between air and sea shipping.
However, since sea shipping prices have started to fall back down to something resembling normal, it doesn’t make sense to use air shipping if your goal is to save money. If savings is the goal, then air freight shipping would really only make sense for perishable goods or ones that must be delivered quickly.
- Consider using a freight marketplace.
Up until recently, if a business wanted to book a freight shipment, it would need to go through a freight brokerage firm. The brokerage firm would then contact carriers and arrange the transport of goods from one country (or city) to another. The brokerage firm would take care of all the administrative work and charge a management fee on top of the cost of the freight itself.
For many businesses, using a freight brokerage firm is still a good idea. But now tools like Freightos make it possible to book freight on your own in the same way that you can book flights and hotels online. Booking your own freight is relatively simple and can be an easy way to eliminate some supply chain costs.
If you intend to implement this tip, do your research and be careful. This solution is an easy way for some people to save money, but it’s not right for every business. If you have any doubts about your ability to book freight without a brokerage firm, then go ahead and work with the brokerage firm anyway.
- Keep an eye on customs clearance costs.
When running a business that requires receiving large quantities of products from other countries, customs clearance costs will add up quickly. Rules on tariffs, safety testing requirements, and taxes and duties are prone to change over time, as they are political by nature. If you find that customs clearance costs are becoming burdensome, it may make sense to order inventory or raw materials domestically or from somewhere else.
If you need to run a few scenarios to see the difference in customs clearance costs for different shipping origins and destinations, check out SimplyDuty.
- Practice good inventory management principles.
Good inventory management practices can help keep supply chain costs in check. Much of this comes down to staying organized and keeping good data. The easiest place to start is by using high-quality inventory management software such as NetSuite or Skubana.
Good inventory management can help cut costs in a couple of ways. First, by preventing stockouts, companies can reduce lost sales revenue and eliminate the cost of express shipping when new inventory needs to be ordered in a hurry.
That said, some inventory is more important to keep on hand than others. One easy way to categorize inventory is by assigning A to the most important inventory, B to the second most important inventory, and so on. This will help narrow your focus so that you spend more time keeping A inventory in stock instead of less-important C or D inventory.
Another important inventory management tip is to monitor sales cycles. When you begin to understand when certain items are more likely to be ordered, it’s easier to keep them properly stocked. That means not running out when you need them and not holding a bunch in the warehouse when you don’t.
- Reduce your product return rate.
As many as 20-30% of eCommerce orders end up being returned. That’s a shocking and profoundly important statistic if you run an eCommerce store.
Every time an eCommerce order is returned, not only does the store owner generally pay for postage to have the item returned, but the item itself can often not be put back into stock and sold again. That’s why every single return comes with a cost, and one that can often be quite substantial!
Time spent reducing product returns is time well spent. Cutting down returns by even a few percentage points can dramatically cut back unruly supply chain costs.
One easy way to reduce returns is to create detailed product descriptions complete with good images. This can help buyers know exactly what they’re buying to prevent returns caused by a customer not understanding what they are purchasing.
Other than that, the next best way to reduce product returns is by paying attention to customer feedback and implementing fixes when something with the product isn’t quite right.
- Outsource order fulfillment.
Companies with steady order volume can often benefit from outsourcing fulfillment to a third-party logistics company. While the idea of paying another company for their labor might sound like a terrible way to cut costs, it can often work really well.
Fulfillment centers get deep discounts on postage and supplies. These discounts are often well in excess of what it costs to have a warehouse worker retrieve items from inventory, pack them into boxes, and apply postage. (You can learn more about why this works here.)
This is not the right solution for every company. However, eCommerce companies that are seeing 100 orders per month or more can usually benefit from hiring a fulfillment center. The higher the order volume goes, the greater the probability of saving money by outsourcing fulfillment.
Supply chain costs can be formidable. That said, saving money on supply chain costs is not hard, and there are a lot of relatively simple ways to do so.
Cutting product size and weight down can save a ton of money in the long run. A little bit of knowledge about freight shipping can dramatically cut down on costs associated with that part of the process. Following best practices around inventory and return management can also help keep costs in check. Finally, outsourcing order fulfillment can also save a lot of money when the situation is right.
Overwhelmed by all the work that goes into setting up an eCommerce store? Check out Fulfillrite’s free eCommerce/Shopify checklist. It lists everything you need to know to get your store up and running.
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