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. The following information discusses one of those areas that traditionally do not receive the attention they deserve.
Management of the inbound freight function is one of the most overlooked areas for significant cost reduction in many companies. Direct marketing companies may spend from 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. Most successful companies who have paid attention to inbound freight view inbound freight management as controlling inventory in transit. Since 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 Retail sites and customers at home, 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 its management a complex undertaking.
Effectively managing the inbound flow of product to your business is a complicated process. It is becoming more complex as customer demands increase in terms of their expectations of service levels. Compounding the difficulty is management’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. Adding to the difficulty is the increasing phenomenon 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:
- Reduced freight costs and improved “bottom line”
- Improvement in on-time deliveries
- Reduction in purchasing lead times
- Less handlings and damage
- Lower inventory levels and reduced carrying costs
- Providing maximum visibility into the process
- Improvement in warehouse productivity
- Increased customer service
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:
- Vendor Compliance
- Freight Paid vs. Freight Collect
- Visibility and System Control
- Vendor Relationships
1. Vendor Compliance
Having a current and complete Vendor Compliance program lies at the heart of 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.
2. Freight Paid vs. Freight Collect
There is a growing trend in the industry 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.
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, 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.
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. 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 dialog 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 dialog 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.
Curt Barry is president of F. Curtis Barry & Company, a fulfillment consulting firm for catalog, e-commerce, and retail businesses. We offer clients expertise in business process and order management systems, inventory management systems, warehouse management systems; warehousing and distribution; call center services; inventory management and forecasting solutions; and strategic, financial, and operational planning for all business channels.
He can be reached at 1897 Billingsgate Circle, Suite 102, Richmond, VA 23238, phone: 804-740-8743; email: email@example.com; website: http://www.fcbco.com.