7 ways to optimize budgets as transportation costs rise
Prolonged high prices force manufacturers and retailers to figure out how to make their budgets work.
As freight costs continue to rise, manufacturers and retailers are starting to feel the pain.
Whether companies are using air cargo, ocean shipping, trucking or rail, transporting products along the suppy chain in 2021 comes with high rates, fees, and congestion. The issue is starting to show up in company financial statements as companies are attributing their thinner margins to transport costs.
As a result, companies looking to avoid a big impact to their margins are looking harder at their budgets. Here are seven ways experts say companies can lower supply chain costs.
1. Know your costs
Before deciding what areas of the budget to hit, it’s helpful to know exactly what those costs are.
A distribution business might look at KPIs including the cost of goods sold as the primary cost driver, said Matt Abbott, chief strategy officer of Cavallo, which makes distribution inventory management software. With the ability to aggregate the data, companies can be more strategic in procurement, changing sourcing decisions based on cost and service level.
Matt Abbott Chief Strategy Officer
"With supply chain constraints, quite often the bottlenecks in business are forming because they’re waiting on product from Asia. It’s important to aggregate the data to understand the best supply choices that can drive down the cost of the product, but also make sure they’re meeting the needs of the customers in terms of availability and delivery."
2. Volume-based discounts
Take advantage of volume-based discounts, especially going into the fourth quarter.
“It’s important to track where they stand in terms of volumes built into the contracts,” said Abbott. It’s possible that by increasing volumes with some vendors, a distributor can receive rebates, saving money overall.