After each fiscal year, many companies task their operations to figure out new ways to reduce costs for the upcoming year. Every aspect of the company’s factors which impact the bottom line should and does come under review. However, not every area of the business is given equal scrutiny. One of those areas that shippers traditionally do not give the attention deserved is inbound freight management.
Depending on the industry and size of the company, a business can spend more than 40% of its annual freight budget on inbound shipping, according to the Aberdeen Group, a research firm in Boston. Often more than not, savings in inbound freight costs can go directly to the bottom line. Most successful companies who have paid attention to inbound freight view inbound freight management as controlling inventory in transit. Since inventory is, in many cases, a company’s largest asset, the management of inventory is critical to business success. The proper management of this function plays a key role in achieving inventory, productivity, and service goals.
Inbound freight involves the management and control of freight from:
The variety of processes supported by the inbound freight process make its management a complex undertaking.
Effectively managing the inbound flow of product to your business is a complex process which is only getting more complex as customer demands increase in terms of their expectations of service levels. Increasing the difficulty is the shipper’s desire to effect cost reduction while maintaining reliable service. In addition to the more obvious and visible impact of inbound freight costs to overall profitability, the management of this area also affects inventory control, overall warehouse productivity, and customer service.
Making matters even more difficult are issues such as rising fuel charges, the increase in offshore product sourcing, and the ever changing array of carriers and their service offerings. Furthermore still is the increasing trend of multi-channel businesses operating out of multiple warehouse facilities. In addition, direct shipments to Retail locations and Direct customers make controlling inbound activities in a cost effective manner much more complex.
As you begin to analyze your inbound freight practices, you should establish objectives that will help guide your decision making process. Objectives can be established in the following areas; among others:
In order to meet your objectives, there are a few key areas of attention that can provide the focus for the analysis. Four key issues or areas that warrant your attention are:
Let’s cover each in more detail.
Having a current and complete Vendor Compliance program is the central area of focus for effective inbound freight management. The program should, most importantly, define vendor expectations and provide for a method of measuring and reporting on performance against those expectations. It is one of the most effective ways to insure consistency and reliability in the management of the inbound freight process.
Basic measures such as on-time delivery, meeting damage and accuracy expectations, and providing the proper paperwork are among the key metrics to monitor. With the increase in imported product and the diversity of domestic vendors and an increasing use of consolidators, providing a routing guide is a critical piece of any Vendor Compliance program. By controlling the routing and timing of deliveries from your vendors, efficiencies throughout the supply chain are possible.
Freight Paid vs. Freight Collect
A growing trend in the industry is the ability to convert from the prepaid freight concept to a freight collect policy. Those who have performed the due diligence of the comparison of these two concepts are realizing significant cost reductions and overall control. They have realized the words “Free Freight” should raise a red flag and precipitate further discussion.
Although it is sometimes very difficult to gather the required information to make an informed decision, the effort can be well worth your time. Even if there are no changes made, the discussions you have with your vendors and carriers often prove beneficial in other areas.
Visibility and System Control
One of the key elements in an effective inbound freight management program is the ability to have visibility into the supply chain to track and control inventory movements, as well as visibility into your freight activity and data. This control has to be supported by an information system that helps manage this complex process, such as a robust Transportation Management System.
Many software vendors offer products that help manage the process in a variety of ways. You should always develop a set of functional and process requirements that you expect the software to meet before you begin the search. During the search, an evaluation of their responses to these requirements and a combination of reference calls, site visits, and system demos should be completed. Making sure you know what you want is the first step in obtaining a system that meets your needs and expectations.
One of the most overlooked factors in a successful inbound freight program is the relationship you have with your vendors and carriers. Those companies who have taken the time to foster a productive and collaborative relationship consistently reap the benefits. As in any relationship, having a feeling of trust and the ability to have an honest and meaningful dialogue are the keys to success.
Many companies try to manage the relationship through rigid contracts and performance measures. While these are important, having the ability to deal with someone you trust supersedes any legal restrictions you can place on the process. Many ideas for improving the process come through this dialogue and collaboration, rather than through the strict enforcement of an agreement. In addition, with the speed at which the total supply chain is evolving, having a good relationship is a real asset in keeping up.
Those companies who have paid attention to the management of the inbound freight process have seen reductions in overall freight costs, reduced inventories and safety stock, improved warehouse operating costs, and enhanced overall customer service. It is worth the time and energy to investigate this often overlooked area in your supply chain.
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