Some things never change. After the holiday season, there is invariably a movement to determine how costs can be reduced for the upcoming year. Every aspect of the operation should and does come under review. But not every area of the business is given equal scrutiny. Management of the inbound freight function, for example, is one of the most overlooked areas for significant cost reduction.
Direct marketing companies may spend 2%-4% of gross sales on inbound freight. Some estimates rate inbound freight costs as 35% of the total logistics cost of many companies. Remember that any savings in inbound freight costs can go directly to the bottom line.
Then, too, most successful companies that have paid attention to inbound freight view inbound freight management as controlling inventory in transit. Because your inventory is, in many cases, your largest asset, the management of this asset is critical to your 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 domestic and offshore vendors, consolidation of vendor shipments, direct shipments to stores and to customers at home or the workplace, multiple shipping points, and warehouse cross-dock opportunities for retail replenishment and backorder processing. The variety of processes supported by the inbound freight process make managing it a complex undertaking.
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:
- Reduced freight costs and improved bottom line
- Improvement in on-time deliveries
- Reduction in purchasing lead times
- Less handling and damage
- Lower inventory levels and reduced carrying costs
- Maximum visibility into the process
- Improved warehouse productivity
• Increased customer service To meet your objectives, you need to pay particular attention to four key areas:
1) Vendor compliance
Having a current and complete vendor compliance program lies at the heart of inbound freight management. Above all else, the program should 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 ensure 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 major 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, you can implement efficiencies throughout the supply chain.
2) Prepaid vs. freight collect
There is a growing trend in the industry to convert from the prepaid freight concept to a freight collect policy.
Freight collect is where the purchaser or company that controls the routing and the rates that are charged by the carrier. Prepaid is where the rates are controlled by the shipper.
Those who have performed the due diligence of the comparison of these two concepts are realizing significant cost reductions and improved control. They have realized the words “free freight” are never free because there are always charges associated with delivering a product and 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.
3) Visibility and system control
One of the key elements in an effective inbound freight management process is the ability to have visibility into the supply chain to track and control inventory movements. This control has to be supported by an information system that helps manage this complex process.
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, you should evaluate their responses to these requirements as well as make reference calls and site visits, and participate in system demos. Making sure you know what you want is the first step in obtaining a system that meets your needs and expectations.
4) Vendor relationships
One of the most overlooked factors in a successful inbound freight program is the relationship you have with your vendors and carriers. As in any other relationship, a feeling of trust and the ability to have an honest and meaningful dialogue are necessary for success.
Many companies try to manage relationships 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 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.
Curt Barry is president of F. Curtis Barry & Co., (www.fcbco.com) a Richmond-based consultancy specializing in contact center, fulfillment, and systems for multichannel companies.