After each fiscal year, many companies task their operations to figure out new ways to reduce costs for the upcoming year. Every factor that impacts the bottom line should and
does come under review, but not every area of the business is given equal scrutiny. One of these is inbound freight management.
A business can spend more than 40 percent of its annual
freight budget on inbound shipping, according to the Aberdeen
Group. 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 its 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.
Effective Inbound Freight Management
Effectively managing the inbound flow of product to your business is only getting more complex as customer expectations of
service levels increase. Increasing the difficulty is the shipper’s
desire to effect cost reduction while maintaining reliable service.
In addition to the 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:
1. Reduced freight costs and improved “bottom line.”
2. Improvement in on-time deliveries.
3. Reduction in purchasing lead times.
4. Less handling and damage.
5. Lower inventory levels and reduced carrying costs.
6. Providing maximum visibility into the process.
7. Improvement in warehouse productivity.
8. 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:
#1: Vendor Compliance
Having a current and complete Vendor Compliance program
is the central area of focus for effective inbound freight man-
agement. The program should define vendor expectations and
provide 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 key metrics to monitor. With the increase in imported
product, 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
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 some-
times 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 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
Inbound Freight: 8 Objectives to Consider and 6
Areas of Focus for Confident Management
BY ADAM ROBINSON, MARKETING MANAGER, CERASIS, INC.
Inbound freight management is an area each shipper can improve