Cost reduction is always a challenge in a supply chain. Every step in the supply chain—from sourcing and manufacturing, to warehousing, logistics, and transport—incurs additional costs that businesses try to limit. It is estimated that the supply chain and logistics account for more than 10% of a business’s overall costs. The efforts to lower costs in a complex global supply chain are tricky, as they need to be effective without being counterproductive in the long run.
Though supply chain challenges are industry and product specific, operational inefficiencies and a lack of visibility in the supply chain are often the key reasons behind increases in the total cost of business (TCOB). Hidden costs in the supply chain resulting from these issues can be addressed by implementing strategies that leverage technology and auxiliary equipment.
Identifying The Hidden Costs in Your Supply Chain
Hidden costs in the supply chain not only impact operational budgets, but they also delay the timely delivery of products to consumers which can tarnish a brand’s reputation. This is why businesses need to identify these costs before they add up. While often overlooked, the following aspects of the supply chain are hidden costs:
Inefficient Warehouse Practices
Though most warehouses have moved on to software such as Warehouse Management System (WMS) to keep track of inventory, they do not utilize the full potential of the software. Critical activities such as slotting or managing yard traffic are still performed without WMS, and this leads to increased time and labor costs in the supply chain. Likewise, delays in adopting Automated Storage and Retrieval Systems (ASRS) can further slow down warehouse processes and add more hidden costs.
Inadequate Transport Strategies
Empty miles or deadhead trucking offers no ROI on transport expenses, labor wages, and maintenance of the vehicles. Empty miles accrue when logistics managers are unable to keep track of shipments that are bound for different locations. The unavailability of Radio Frequency Identification (RFID) tracking solutions in tracing shipments, coupled with expensive offshoring sourcing strategies, reflect more hidden costs in the supply chain.
Excess Packaging Costs
Businesses use excess packaging to avoid product damages. However, the increased weight of product packaging raises shipping costs, and this hurts the bottom line. Additionally, non-recyclable plastic packaging negatively affects supply chain sustainability and increases carbon footprints.
Product damage in the supply chain can occur during transportation due to improper packaging and faulty shipping platforms, or it can occur in warehouses because of inadequate storage. In either case, damaged shipments that are either rejected or recalled result in further lost revenues for businesses.
Cost of Shipping Pallets
While addressing these hidden costs in the supply chain can be a time-intensive investment that requires continuous efforts to improve warehousing and logistics practices through technology, there is one exception that offers a simpler fix: switching to plastic pallet pooling solution.
Reducing Hidden Costs in Supply Chain With Plastic Pallets
High-quality plastic pallets have several advantages over wood block pallets that can help address hidden costs in the supply chain. The potential benefits of plastic pallets streamline key supply chain activities while reducing their operational costs:
- Decreased product damage: Devoid of any nails or loose boards, plastic pallets are less likely to cause product damage as compared to wood pallets. The presence of a solid top deck on each pallet further reduces instances of product damage during transport and storage.
- Lower shipping costs: Plastic pallets are up to 35% lighter than conventional wood pallets, resulting in a 25 lb savings per pallet. This translates to overall reduced load weights during transport—and lower fuel and transport costs.
- Easier tracking: When integrated with WMS, plastic pallets embedded with RFID tags can help track shipments across the supply chain, thereby increasing visibility and making product recalls easier.
- Automation-friendly: The unmatched durability and unibody construction of plastic pallets lead to reductions in downtime in an automated environment. This also makes plastic pallets a better complement to ASRS than wood pallets.
Furthermore, the increased durability of high-quality, reusable plastic pallets makes them ideal for pallet pooling. For businesses, purchasing and maintaining a fleet of pallets is cost-intensive and requires additional time and labor. Companies that rent reusable plastic pallets can cut down transportation costs by reducing multiple trips to a pallet depot for pallet cleaning and maintenance. Additionally, by using a third-party provider for pallet pooling, operations managers can optimize a significant portion of warehouse space no longer needed for sorting and storing empty pallets.
Hidden costs in the supply chain cannot be entirely eliminated. However, steps such as switching from wood to plastic pallets can make a consistent difference in the operational budget of the supply chain and enable companies to save as much as $4 per pallet load. In the long run, this can effectively increase a business’s overall profit margin.