The most natural solution for inbound freight management is to let vendors and suppliers handle all processes. Unfortunately, this contributes to higher inbound freight costs. “Why?” You may ask. The answer is simple. Every company wants to increase profitability, and vendors and suppliers may artificially inflate shipping and handling costs to add to their profitability.
Moreover, inbound freight shipments can be subject to numerous changes before it arrives at your dock, allowing other customers to pick up freight at will-call locations or receiving it for delivery on one of your other trucks. Ultimately, you are paying for freight from the vendor to your door, even when such freight has a lower cost. However, utilizing prepaid and add for inbound logistics management and help shippers avoid these costs and challenges, understand inbound freight management, and improve inbound logistics optimization.
As with any supply chain process, inbound logistics comes with risks and challenges. The challenges of using key terms, including prepaid and add for inbound logistics, can have a double meaning. In other words, the implied nature does not necessarily reflect the real nature of the transaction’s contractual obligations. According to Bren Wm. Primus of Parcel Magazine, the payment term listed on inbound freight can have a drastic effect on freight costs. Even though the term, prepaid, implies payment in advance, it does not necessarily mean payment has completed. Ultimately, it merely provides a direction for the liability of a shipment. As a result, shippers that use these terms unknowingly may be paying for an artificially inflated cost of shipping, and an average company spends more than 40 percent of total freight budget on inbound shipping, it makes sense to know whether such activities are occurring, notes the Aberdeen Group via Logistics Management.
The typical vendor may markup outbound freight costs to more than 15 percent, says Alex Khan of Inbound Logistics, resulting in shippers paying 115 percent of the inbound freight actual cost. However, outsourcing the process or otherwise gaining additional control and visibility into actual inbound logistics costs can avoid the issue.
Using prepaid and add for inbound logistics can improve overall operations. For example, shippers should change CT and add to collect, which means shippers retain greater control over inbound freight costs, and the costs of shipping are paid retroactively after shipments are delivered. Furthermore, using prepaid and add are ways to optimize freight management, and according to Supply Chain 24/7, such optimization may yield savings of up to 9 percent.
The best-laid plans for renegotiating contract terms in managing inbound freight will fall on deaf ears and result in higher inbound freight costs for organizations that do not deploy meaningful measures to track vendor performance and adherence to the inbound freight routing guide. Ultimately, shippers relinquish part of the control over inbound freight management when vendors fail to comply with the rules within the routing guide.
One way shippers can leverage prepaid and add to improve inbound logistics is by offering a premium service for guaranteed delivery, such as advising vendors that you will order the product at more frequent, more significant intervals if all requirements within the inbound freight routing guide are met. More importantly, shippers may use the traditional meaning of prepaid to pay inbound freight shipping costs, as well as completing scheduling activities, before a product or shipment ever leads vendor control. Unfortunately, this can harm shippers, resulting in less time to devote to in-house operations. Fortunately, working with a third party logistics provider (3PL) can help alleviate this problem as well.
Depending on the origin and destination of freight, as well as the motor transportation, different terms may, and it is almost impossible to keep track of all Incoterms, including those that are used in specific regions that vary from the generalized list. Therefore, it is imperative that shippers consider the cross-cultural issues and factors that may affect liability, payment, and priority affecting inbound freight.
Different shipping terms can radically alter the basic expectations in managing inbound freight. Shippers who utilize prepay and add, as well as replacing them with collect, can effectively move control and liability for a shipment from vendors to shippers, regardless of the stage of transportation. Shippers should take the time to learn these terms and utilize available resources, including those of Cerasis transportation management technology and solutions, to ensure they have full control over both inbound freight planning and costs.
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