Ten Steps to Managing Inbound Freight: A Coordinated Dance between Shippers and Suppliers
There is a profound difference between inbound and outbound logistics—inbound deals with the delivery of raw materials or goods coming into a business while outbound logistics refers to goods going out. Inbound logistics operations involve a relationship between suppliers and a business, while outbound relates to the business, its products and its end customers. Both inbound and outbound freight require carefully choreographed steps for a successful dance.
According to analyst firm Aberdeen Group, a business can spend more than 40% of its annual freight budget oTen Steps to Managing Inbound Freight: A Coordinated Dance between Shippers and Suppliersn inbound operations. A more efficient inbound freight program streamlines processes to achieve greater savings. However, many businesses overlook inbound freight management since making it successful is not easy. In fact, it’s often the “final frontier” for businesses that are trying to eke additional costs out of their transportation spend.
Done right, inbound freight management does more than just help companies gain an understanding of where their shipments are at any given moment. It also encourages better supplier-carrier-customer relationships, reduces the need for excess inventory, improves reliability across the supply chain, and creates an atmosphere of accountability for all supply chain partners.
Here are 10 steps you can take to start managing your inbound freight more effectively today:
1. Partner with your suppliers to lay out a plan of action. Determine the most cost-effective and efficient way to ship and unload your freight, and build a plan with your suppliers that benefits both parties. There is no “magic number” for a percentage of shipments that should be vendor-controlled vs. customer-controlled. Give your suppliers a choice so that they can select the most effective service and billing procedure.
2. Implement a standard routing guide for supplier compliance. This will establish a set of mandatory guidelines that will be used for all vendor-controlled (VDS) and customer pick-up (CPU) shipments. Supplier compliance programs reduce your cost of goods by making your carriers and warehouse more efficient. In the event your suppliers fail to comply, they will share in your cost as outlined in the routing guide.
3. Consolidate inbound shipments to full truckload whenever possible. Consolidating inbound shipments to full truckload wherever possible reduces freight and unloading costs. Fewer individual less-than-truckload (LTL) shipments entering the distribution center means greater efficiency and fewer unloading charges. Unloading 10 to 14 different LTL shipments can be five times the cost of unloading a single truckload. The customer and the supplier can share these savings when they consolidate shipments and implement drop trailer programs.
Effective inbound management involves focusing on a specific set of carriers. Narrowing in on a group of preferred carriers allows for more opportunities for consolidation. With increased consolidations, distribution centers become more efficient and improvements can be more successfully measured. Benefits like decreased congestion in the yard and easier labor plans often result from consolidating loads and managing the inbound more effectively.
A typical unloading cost for a truckload shipment is equal to around $200. On average, a consolidated full truckload can be comprised of 14 LTL shipments, each normally costing about $72 each to unload. The unloading savings on one consolidated truckload shipment is over $800. ($72 x 14 = $1008; $1008 - $200 = $808).
4. Create strong alliances with your carriers. Select carriers that provide attractive rates and superior service and try to limit that set to two to four different carriers based on whether the shipments are CPU or VDS. This will give each carrier enough business to ensure LTL consolidation does not affect service levels. Having a strong partnership with your carriers also opens up other opportunities for additional savings such as backhaul agreements.
5. Implement a dynamic rate allowance program for freight costs. In most cases, allowances are negotiated once or twice a year, and rarely take into account fluctuating costs and carrier rates. Oftentimes, market rates rise above negotiated rates. A transportation management system (TMS) can help enable the creation of dynamic rate allowances to ensure savings on both truckload and LTL shipments by calculating the best possible real-time vendor allowances based on actual carrier rates as demand dictates. A dynamic rate allowance program will allow you to structure allowances using your actual carrier rates and unloading costs.
6. Implement a set of automated Vendor Inbound Compliance Standards (VICS) to change supplier behavior. Establish a comprehensive set of rules, processes and violations for compliance that must be followed by suppliers when making deliveries to your facilities. By following these procedures, supplier behavior will improve so that inefficiencies are eliminated and don’t cost your company money.
7. Establish penalties for violators of compliance. For compliance procedures to be effective, they need to have penalties associated with violations of the routing guide and compliance rules. The goal of this program is to change the supplier’s behavior. Any penalty fees collected can offset the loss of efficiency.
8. Implement deduct-from-invoice (DFI) capability with your ERP. Having an automated approach to deduct the freight and unloading allowances at the purchase order level ensures payment to the supplier is handled accurately. A TMS should integrate this information back into the ERP for automatic payment. Penalties from VICS violations can be automated the same way so that they are instantly deducted from invoices prior to payment.
9. Implement a supplier portal system to improve communication and collaboration with suppliers. A supplier portal allows stakeholders to have visibility to all orders, providing visibility to order changes or delays in real-time. A portal can also be used to keep track of any violations and alert the appropriate parties when a change occurs.
10. Capture analytics to measure savings and find additional areas for improvement. If you cannot measure something it is hard to improve it. An effective TMS will capture every relevant piece of data and return reports, dashboards and scorecards that allow you to analyze your inbound freight program and identify opportunities for increased efficiency.
Ultimately, good inbound freight management facilitated by technology can help shippers achieve cost and productivity goals that very often get overlooked in the logistics space.
By taking a step back and gaining a better understanding of your current inbound environment—then working with suppliers and carriers to come up with a choreographed plan of action to improve it—you’ll be able to leverage all of the market’s capacity, get the best rates, and gain better visibility over your end-to-end supply chain.
Dan Clark is founder and president of Kuebix, a provider of a transportation management system (TMS) with freight intelligence that enables companies to capitalize on supply chain opportunities through visibility, control and the use of predictive analytics.
