5 Steps to Take Total Control of Your Inbound Logistics Costs (Part 1)

Posted by George Muha on Jul 26, 2016 2:33:42 PM

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Without a doubt the hottest topic I've discussed with shippers over my past 18 years in the transportation space is the lack of control people feel they have within their inbound logistics operation.  Many people seem to think they are getting scammed by costly prepaid and add programs or played a fool by vendor's "free freight" program.  And they have good reason to feel that way because it's been my experience that many times they are.  

I've spent a career unbundling inbound programs for companies and have found that this is an area that is worth diving into.  In fact, if you attack this the right way, it can produce a windfall of found money.

Since I have done this a countless amount of times, I've broken this down into five easy-to-follow posts so that anyone in your company can significantly impact this area of your business.  If you follow these five steps, no matter how big or small your company is, I'd put money that you will find a significant amount of cash available for the taking...no pun intended.  

Part 1:  Evaluate Current Vendor Progarms

Okay, let's cut out the small talk and delve right into this mother.  There are three different ways transportation is set up from vendors; freight collect, prepaid & add and delivered price.  What I want you to do is to simply start out by listing the vendors that make the top 20% of your purchases.  Then I want you to sort them by vendors who ship freight collect to you, prepaid & add freight onto their invoices and ones who ship delivered price.

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I told you were going to move fast.  Now that you have these vendors sorted out, let's look at how we'll address each category.  

Freight Collect

For this category, there is not much we will do right now so put all the vendors where your freight terms are collect to your company to the side for now.  We will get back to them but there is other low hanging fruit that we need to get to first.  

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Prepaid & Add

Okay, here's where there is some meat that we can start gnawing off the bone like a carnivorous dinosaur.  So, you should have a list of all the vendors where they are prepay and adding freight to their inovice and charging you for both freight and product on one invoice.  This is the easiest to convert so that you can start to save money and reduce truck congestion at your dock.  

The way you tackle this is to pull the last several months of invoices from each vendor on the prepaid & add list.  Then pull all of the delivery receipts for the corresponding invoices.  The delivery receipts are those pieces of paper the trucking company makes you sign and gives you a copy when they deliver your vendors product.  So if you have your vendors invoice and the matching delivery receipt, you have everything you need to price compare.  The goal here is to make sure it makes sense (i.e. cheaper without sacraficing service) to ship collect via your own preferred freight carrier, vs. your vendor's freight program (and the likely markup they are tacking on to it).  

To compare your own vendors freight program to yours, simply refer to the delivery receipt to get the exact shipper and destination zip codes, weight and freight class.  Once you have that information, plug that into the rating engines for the carriers you have set up under your account.  When you get that rate, compare it to what the vendor charged you.  Do this process to as many vendor invoices you can until you feel comfortable that you have identified the vendors whose prepaid and add programs are more costly than you shipping collect.  

Don't start screaming at your vendors just yet.  I know, your pissed because you've just figred out that some of your most loyal suppliers are ripping you off.  But try to be cool.  We'll be addressing these vendors in a future post.  But before we do we need to get some other stuff in order.  For now, just identify who the vendors are that you will be converting from prepaid and add to collect.  

Delivered Price

One day I am going to write a book regarding "delivered price".  I am going to title it No Virginia There Is No Such Thing As Free Freight.  Personally I do not like delivered price / free freight programs for two reasons.  One is because it takes control from the buying company.  And second, because the freight cost is hidden.  Although I agree living in ignorance is bliss, it doesn't fall in line with supply chain excellence, so companies need to address this.  We will focus on this on a later post.  But for now, just make sure you have separated the top vendors you have delivered price programs with.  

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HOMEWORK

Okay class, that is enough for today.  If you followed these instructions you don't have any homework.  Just to ensure you accomplished todays goals, you should have a list of your vendors broken down into three separate categories;

  1. vendors who ship collect via your freight account
  2. vendors who currently ship prepaid and add but who you've identified where it is cheaper if you did ship collect via your own freight account
  3. vendors who ship "delivered price" to you.  

Again, we are focusing only on the top vendors who handle the top 20% of your business for now.  We'll duplicate our efforts for the remaining vendors later on.  But for now, let's just stay focused on this top 20%.  

I told you we were going to move fast!  So put on your seat belt and take out your umbrella, because soon it is going to start to rain money at your company!

Topics: freight savings, prepay & add, Cost Reduction

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