5 Ways to Reduce Sourcing and Logistics Costs

Tip 1: Take Control – Purchase Direct

Are you fully in control of your supply chain? Are you purchasing key inventory items through a third party? Significant cost-saving opportunities exist by buying directly from suppliers and manufacturers.

• Understand total landing costs per unit: Do you have a clear understanding of your landing cost per unit? How do freight costs, import duties, and compliance certifications impact your product's actual landing costs? These factors directly affect your profit margin per unit. Understanding the full landing cost empowers you to make smarter pricing decisions.

• Demand full product cost transparency: You should have a detailed breakdown of all the costs associated with your products. Require your supplier to provide a Bill of Materials (BOM) that outlines the cost of materials and labor for each product.

• Buying from overseas? There are ways to save by importing directly. Are you a registered importer? If not, consider becoming one to cut out the middleman and reduce costs.

Tip 2: Renegotiate Product Pricing – Just Ask!

When was the last time you asked your supplier for a discount? Simply asking can often lead to quick cost reductions in procurement.

• Ask for a volume discount: If you're increasing your order quantities, there's usually room for renegotiating prices based on volume.

• Benchmark pricing: Conduct a simple benchmarking exercise to understand pricing from other suppliers. Use this data to negotiate better deals with your current supplier or consider switching to lower-cost alternatives.

Tip 3: Review Freight and Inventory Management Costs

Are you aware of how much you're paying to ship your products and manage your inventory? Understanding these costs is crucial for optimizing your operations.

• Get a new insurance plan: Are you insuring your freight through your freight forwarder? You could save significantly with an annual insurance plan.

• Review storage fees and penalties, and set up SOPs: If you see terms like "demurrage" and "detention" on your freight invoices, it's time to have a conversation with your forwarder and establish processes to avoid these costly fees.

• Integrate sourcing, ordering, and inventory tracking: Use one system to keep track of sourcing, ordering, and inventory. This helps optimize costs and ensures you're always in stock.

Tip 4: Explore New Suppliers and Manufacturers

Relying on one supplier? While your current supplier may seem irreplaceable, it’s always wise to explore other options—or at least have a backup plan.

• Review local options: Have you considered domestic suppliers? Sometimes, cost savings can be found at home, especially when you eliminate international shipping costs. Looking for suppliers in the USA? Check out our guide on finding a USA-based manufacturer.

• Diversify geographically: If you can't find what you need locally, consider sourcing from other regions. You might find cost savings by shifting your supply chain geographically.

Tip 5: Importing? Review Customs Clearance and Compliance Costs

If you're importing products from overseas, there are major opportunities to cut costs.

• Review import duty payments and fees: Do you know how much you're paying in import duties? You could be paying too much—or not enough. A thorough review could reveal opportunities for savings or compliance issues like anti-dumping duties.

• Review product classification: Are your products correctly classified? Sometimes reclassifying products can result in cost savings.

• Review Incoterms: Not familiar with Incoterms? It's time to review your shipping terms. For instance, if your supplier is handling Delivered Duty Paid (DDP), are you sure they’re covering all duties and compliance requirements? Use tools like ddpcheck.com to verify.

• Reduce customs clearance fees: If you're placing over 10 orders a year, explore alternative providers to reduce your customs clearance fees.

• Verify all compliance requirements: The biggest financial risk when importing is non-compliance, which can result in product seizures at the port. Make sure you fully understand all compliance and admissibility requirements for your products.

For more information and resources, visit the Supply Chain Shark portal at portal.supplychainshark.com.