Supply chains continue to struggle with inflationary pressures. Carriers report sustained demand increases and constrained capacity. Difficulties recruiting and retaining employees are pervasive. The November quit rate was the highest on record, while U.S. parcel shipping rates are rising faster than they have in nearly a decade. The results are delays and price hikes. To stem financial losses, USPS is raising its rates and lowering its service commitments.
So how should middle-market companies respond to these inflationary pressures? We offer these considerations…
“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
– Dwight D. Eisenhower
- Simplify product offering, reducing costly, non-value-added product/service features
- Shape demand by offering substitutes and narrow the assortment based on product availability and buying trends
- Postpone product deployment or final product configuration to create assortment flexibility and reduce investment
- Adopt modeling tools to identify process inefficiencies
- Use computer-aided design tools to minimize component waste
- Sell spare operational capacity as a service (sourcing, storage, inventory management, (reverse) logistics, customer service, etc.)
- Embrace remote work or part-time roles, and consider weekends or additional shifts to provide greater capacity
- Invest in automation (RPAs, picking technologies) to hedge wage increases and labor shortages
- Consider alternatives to UPS and FedEx: Investigate intermodal shipping, pursue local couriers in dense markets, drop off at hubs, build a network of regional carriers, combine volume with channel partners to skip zones
- Reduce shipping frequency
- Adopt transportation management systems to match appropriate modes with order profile
- Optimize shipping container sizes to reduce dimensional charges
- Leverage retail operations to entice customers to come to you, to reduce shipping costs
- Audit price history to confirm supply chain partners are adhering to contract terms
- Combine volume with Group Purchasing Organizations (GPOs) to improve pricing power and service levels
- Redesign packaging, removing non-value-added materials
- Forward buy to achieve better pricing tiers and reduce number of inbound shipments.
- Engage with suppliers to identify process efficiency opportunities
- Raise thresholds before offering pricing discounts, free or expedited shipping
- Adopt “Cost to serve” modeling to understand customer dynamics to address profit leakage
- Raise prices. Customers understand current events; consider passing on those costs. If that’s a bridge too far, adopt strategic pricing technologies to find where price sensitivities are blunted
- Longer term strategies
- Move operations closer to your customers; consider near-shoring
- Co-locate operations with complementary or portfolio businesses
- Consider 3PL options with adequate controls in place to achieve economies of scale
While no “one-size-fits-all” solution exists, we offer the ideas above for your team to consider. Contact us for help building custom solutions for your environment. We’re your Partner to Grow.
About Pete Beckwith
Pete Beckwith is a partner with Fisher Management Partners, and he leads its Value Chain Practice. He began his career at Andersen Consulting and later joined Arthur Andersen’s Business Consulting Practice, where he led Supply Chain solutions for Central Ohio. After Andersen, Pete was the Director of Business Integration and IT Strategy at Cardinal Health, a Fortune 20 company in the global healthcare distribution industry. He later served multiple executive roles at Cardinal Health, including as VP within Merger Integration and Operational Excellence, until he joined Fisher in 2015. Pete has successfully delivered large domestic and international supply chain projects. His areas of expertise include supply chain management, business integration, Lean Six Sigma and continuous improvement. You can reach Pete at firstname.lastname@example.org.