Controlling inbound freight can be challenging, but the rewards of getting it right can be very exciting. We look at several aspects in reaching inbound freight nirvana.
Inbound Freight Management is just not high on a lot of firms’ priority lists
Inbound freight has usually always been under the control of Procurement; its’ secrets guarded and controlled under the pretext that changing the way it has always been done is no big deal since it’s not a priority from a corporate standpoint. Also, a lot of firms are of the view that “we don’t have any issues receiving goods why concentrate on it?“.
Another aspect is that some firms are of the opinion that it is far easier to let the vendors manage and control it, despite their on-time performance, as it’s just part of raw material costs and too difficult to manage all of the parameters.
Realistically, inbound should be controlled under the logistics, transportation or supply chain departments, and they should sell the benefits of looking at and scrutinizing inbound cargo to upper management. The key element is to get internal department heads sold on the concept.
Inbound Freight Management isn’t easy
Imagine trying to manage inbound freight for a firm with a couple of thousand suppliers and some with several divisions from around the world.
Also, add ‘hours of operation’, whether the firm has a loading dock, if using your own fleet, and in carrying used skids, will there be enough capacity to load the inbound cargo at times?
To add insult to injury, once you get this all under control, Procurement changes the supplier with a new one and the whole issue starts all over again.
To manage this aspect, start by getting a handle on what your inbound freight spend really is and which carriers are hauling it.
Ask your vendors to indicate the cost of freight on each invoice. At this point, you will be able to do some analysis of the spend and if it’s worth changing the process and freight terms, or perhaps just handling a smaller portion.
If your project is just too large, consider the use of a 3PL like Skyfer Logistic to manage all of or just a certain portion of your inbound freight.
Inbound freight costs lack transparency
When Procurement issues a P.O. for the product, that invoice usually has the transportation costs built into it. Get your vendors on board and have them start breaking out the freight costs, so that it can then be viewed and analysed.
In a lot of organizations, freight is a very small percentage of high-value items, but the real question is when that transportation spend is a large percentage of the cost of goods sold.
Get your suppliers on board and collaborate/discuss the issue. Again, get that line item broken out into the invoice and analysed.
Ensure that inbound becomes a part of the negotiating process going forward.
Suppliers will not want you to control your inbound freight
Some suppliers will have some really valid reasons why they do not want you to manage your inbound freight, or in other words, their outbound freight.
Your inbound cargo might affect their rates with their present carrier because your freight takes up to 30 percent of the volume to this particular carrier.
In some cases, your inbound cargo will affect their backhauls with their own private fleet. You will even see some suppliers not willing to give up control because it’s now become a profit centre. Yes that’s correct, they are making money off of your inbound. At this point you will have to sit down with your supplier and discuss the issue further.
You just might find out that you are both using the same carrier and just have to decide who should transport the freight based upon economics.
After scrutinizing and improving your inbound program, you can now look forward to significant reductions in transportation costs, increased transportation efficiency, improved control over your inbound, customer service enhancements, improved cycle times and freedom from any legal issues down the road.