Stand Up to Cost Challenges in Today’s Supply Chain

May 18, 2016

The Great Recession is well behind us, but keeping costs in check remains a focus for business owners and managers in many sectors.

With increasing competition from online sources and international rivals, not to mention the rise of a more demanding generation of consumers, retailers of all sizes are finding that cost management is more crucial than ever.

Although it’s clear that costs must be kept in check, separating unnecessary expenses from unavoidable ones is more tricky. Understanding fluctuating costs in the modern supply chain helps managers to see the forest for the trees, finding areas.

trees dollar signs

Today we’ll look at several current cost challenges your business could soon face. By learning more about each issue, it should become easier to identify areas where savings are possible and where costs must simply be swallowed.

 

Peak Season Surcharge

Peak season is an annual challenge logistics companies must confront head on.  As we prepare to ship goods throughout summer and get ready for the seasonal rush that seems to get earlier every year, those familiar carrier surcharges (PSS) start to rear their ugly head during June and July.

container ship and dock crane

That being said, container rates are hitting unexpected lows and some carriers are struggling in a buyer’s market. Such is the impact of this trend, these almost standard seasonal costs are a question mark this year. PSS announcements are yet to be made for 2016, so keep a close eye on the industry. As an additional tip, if you have the shipping volume to justify it, now is the time to lock in preferable rates for your carrier contracts.

 

Labor Costs

The media-coined term “Fight for Fifteen” has focused attention on hiring costs in many sectors, from fast food to fulfillment and beyond. While the ins and outs of a fair wage are questions for a forum other than ours, the reality is that labor costs make up a significant portion of any supply chain operation. By extension, managing this expense effectively increases your ability to compete with larger rivals. In some cases, it can even make you more efficient.

Capacity CSO Thom Campbell offers the following tips on managing labor costs: “During your peak periods, ask employees to avoid vacation time, excepting areas like sales and finance. Make additional use of temporary labor, but rely more on additional shifts of previously trained workers. Add flexibility and scalability wherever possible, but always at the lowest possible cost.”

Capacity LLC Team - Careers

“Take care of your people and rely on a core team if you are a smaller firm. If needed, use overtime to help address the challenges of volumes, but spikes which routinely are 5-10 times the norm require additional hands on deck. ” 

 

Commercial Real Estate Fluctuations

With limited space and the anticipated construction boom not expected to translate into additional square footage until 2017 at the earliest, commercial real estate rates remain a significant cost for U.S. businesses. As the WSJ reports, rent costs for prime warehouse space increased by 9.9% last year alone. That puts storage space at a premium, which means that some businesses will soon be paying a lot more for the same service.

A lot depends on your current contract in this situation. If you have rental rates locked in for the foreseeable future, there’s a chance your company will be able to ride out the current squeeze and renegotiate rates when conditions are more favorable. If your lease is nearly up, options may be limited. Do some research on the available storage alternatives in your area before coming back to the negotiating table, though. Your location – or one not too far from you – may be shielded from the squeeze on space and understanding current market conditions will help to keep any increase in proportion.

 

Transport Surcharges

A topical subject, as California trucking surcharges begin to bite for some shippers. In a similar sense to shipping surcharges, additional land transport expenses tend to come up during peak seasons or fluctuate based on commodity prices. Fuel surcharges are an example of the latter. Others can include limited access charges, fees for unusual cargo dimensions or unexpected weight adjustments. Depending on what you’re shipping, these charges may or may not be justifiable. In some case, they might simply be charged because it’s considered the industry standard by your transport company.

If you have access to a fulfillment partner or individual who has knowledge of the industry, have them walk you through the most common additional service charges levied by transport providers. By knowing what to look for in a provider’s charge sheet you can effectively weigh up different options and, if you have the volume to justify it, negotiate to reduce certain fees or waive them entirely.

With the challenges of meeting demand in the modern marketplace, your supply chain needs to be as efficient as it can be. That means holding suppliers to high standards, ensuring full visibility for your customers, and understanding the cost dynamics of your unique supply chain.

Experience counts for a lot when you’re trying to keep costs down, so make sure you have a seasoned operations manager or fulfillment partner on hand to help focus your efforts. Operational efficiency breeds a better customer experience, so keep a close eye on your costs and a tight relationship with those who influence them!


When it comes time to make a change in your order fulfillment, it helps to have a roadmap to organize the process.

Download our free guide to outsourcing your order fulfillment here.