Taming Supply Chain Cost Fluctuations
By: Rachana Haste , Solutions Specialist at More4apps
Volatility, fluctuation, and turbulence have become a hallmark of the supply chain landscape in recent years. Supply chain costs have been no exception. Raw materials, transportation, inventory holding, and labor costs have constantly seen a sharper rise than ever before posing a challenge for organizations to maintain profitability.
Increasing prices is often the most obvious reaction to absorb a cost increase in the supply chain. However, organizations need to tread carefully around how willing customers are to absorb this change in pricing strategy. The key is to understand price elasticity.
How much can you increase a product’s price before your customers are put off buying from you? Price increases can be exercised only to the extent permissible by consumer price sensitivity.
With the combined factors of weakening demand, more price-sensitive consumers, the prospect of easing inflation , and better supply, some sectors are now forced to find profit growth without the tailwind of price hikes.
What can a business control, when it is forced to look beyond price hikes? Let’s look at the trendsetters in the business world for an answer.
Unilever, the consumer goods giant, announced in March that it would spin off its ice cream unit, which includes Ben & Jerry’s, to reduce costs and simplify its portfolio of brands.
From manufacturing to transit and point of sale, Unilever’s ice cream business differs from the company’s other operating arm. Differences include end-to-end temperature control, equipment, storage facilities, and modes of transportation. Those costs add up on top of the savings from 7,500 job cuts.
“If you get rid of the ice cream business, you’ve got this portfolio that, basically, you can use any warehouse, you can ship it from any truck, you can use the same processes,” said Patrick Penfield, a supply chain professor at Syracuse University. “It makes life a lot easier from a control standpoint.”
Instead of increasing prices across the board Silent Pool, a niche-market spirits distillery company, reduced the number of annual price promotions.
“Rather than running four or five campaigns each year with discounts, we will only run two promotions. It’s a way of increasing prices without necessarily being seen to do so,” says founder McCulloch.
Lovesac drove an $11 million reduction in inventory by relying on evergreen stock and other supply chain efficiencies without compromising delivery times, according to an April 11 earnings call.
President and CEO Mary Fox told analysts that the furniture company attributed the 18% inventory cut to COGS reductions and leveraged lower inbound freight and warehousing costs.
Fox further noted that Lovesac saw a $12.1 million decrease in freight capitalization due to lower inbound freight expenses. In fiscal year 2024, shipping and handling costs were at $133.2 million, down from $159.7 million in FY 2023, according to a 10-K filing . Lovesac has also implemented new planning and operational capabilities, the CEO said.
Sportsman’s Warehouse has been rationalizing SKUs and refining product assortments as part of its inventory management strategy, according to a Q4 earnings call. In its fishing category, the retailer removed 40% of the SKUs and 30% of the vendors, CEO Paul Stone said during the April 3 earnings call.
FedEx has been rightsizing its network footprint to reduce operating costs as it weathers volume declines. The decision will impact more than 200 employees as the delivery giant continues to trim operating costs through its DRIVE and Network 2.0 initiatives.
Retailers across the board are working to beef up their inventories after pandemic-driven challenges clogged ports and caused container shortages. As demand cooled, companies are focusing on rightsizing their inventories to adjust to changing market conditions.
More4apps Insight
These org-wide strategic decisions impact your business operations directly. Operations and enterprise business applications have to quickly adapt to data and process changes when such strategic shifts occur.
Executing these decisions effectively and successfully depends entirely on the agility and nimbleness of your operations, and enterprise business applications form the core. The sheer volume of enterprise data impacts can be daunting when it comes to a simple decision of discontinuing SKUs or consolidating suppliers.
As a business, you must garner the right set of accelerator tools in your arsenal to afford this level of agility to your business applications. When it comes to Oracle business applications, More4apps tools confer this much-needed deftness to your data management teams.
领英推荐
A few example solutions from More4apps are listed here that support the cost response strategies seen above from the pathfinders.
About the Author
Rachana Haste is a Supply Chain solutions specialist at More4apps and serves as a Board Member on multiple Oracle Users’ (OATUG) Special Interest Groups.
An APICS Certified Supply Chain professional with an executive education in Artificial Intelligence, she regularly writes and speaks on the topic of enabling intelligent supply chains.
Additional Resources
?? Webpage: Supplier Data Management in Oracle
??Webinar Recording: Taming the Dragon: Optimizing Cost Management for Sustainable Business Success