Supply chain management strategies to reduce costs pushed

Companies especially the micro, small and medium enterprises (MSMEs) can adopt supply chain management strategies, including those aligning raw material orders when they are needed, to reduce cost and sell products and services at a right price.

“It is not automatic that if your operating cost, input cost are increasing, it is automatic to raise (our prices) because the supply chain strategies are supposed to help us to cope, to help us cut cost to be able to maintain our price point,” Cris John Garcia, trustee at Philippine Institute for Supply Management, said in a webinar.

Garcia said just-in-time (JIT) set-up for transport and manufacturing involves delivering raw materials when there are already product and service orders, thus having a huge warehouse to store raw materials and finished goods is no longer necessary.

“Because the tendency is, if you hoard raw materials, there is always a cost for storage and there is always a probability or a risk of spoilage in your raw material,” he said. “In supply chain management, we don’t want waste, we don’t want to throw away products because anything related to waste is considered a supply chain cost. And these costs will impact our profitability and we don’t want that. That is why we teach the concept of JIT.”

Garcia also underscored the use of hybrid vendor managed inventory (VMI) strategy wherein suppliers or their suppliers have visibility on the stocks inside the stores.

“In short, the suppliers can now prepare in advance the replenishment. So there is no reason for products on the shelf to be out-of-stock. And in supply chain management, out of stock scenario is a mortal sin,” he added.

Garcia cited as example an American multinational retail corporation that clustered its stores depending on their locations in the United States so they can share inventories together in the event of sudden surge in demand.

“So they cluster the store to be able to help each other and there is a logistics network, there is a transportation network designed to do that of course in collaboration with a logistics company,” he said. “Same as us that are MSMEs that we help each other grow, we help each other if other members have requirements.”

Garcia said the forward stocking location (FSL) or field stock location approach is another transportation strategy to address lack of deliveries.

“In a forward stocking location, we deliver a product even before your customer will order. What we do here is that we anticipate the order of a certain customer and normally we do this for customers that are a bit strict and impose penalties,” he added.

Garcia said the FSL approach can be done for customers that are “predictable” and will order based on historical data.

“In the supply chain, we have what we call demand forecasting because if we do have the historical data, we can compute for what could be the order of this particular customer in the future,” he added.

Garcia said the backhaul strategy aims to address the problem when a vehicle returns empty to its original starting point.

He added these vehicles will be loaded with finished goods that will be used in value-added services.

Garcia also underscored the benefits of using alternative ports instead of Manila, and a combination of land and sea transportation.

“Your distribution and warehousing cost is cheaper in the provinces. Of course labor is cheap, warehouse rental is cheap, transportation is cheap in the provinces. That is why I am promoting the use of outport for us,” he added.

Garcia said a direct delivery from import strategy can be also implemented to save warehouse space in the country.

“To save on warehouse costs, this project dedicated specific containers from the origin abroad, a container will leave and when it arrives in the Philippines, these (orders) will be directly delivered to specific customers. It will no longer use warehouses, it will no
longer use distribution centers,” he added.

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