In the third step of our five step process of taking control of inbound logistics we are going to learn how to convert supplier prepay and add shipments to collect. Why? To stop allowing vendors to make big profits on freight and take better control of your own costs, but of course!
Part 3: Convert Prepay and Add to Collect
Okay, let's stop fooling around and start putting some real dollars into your pockets! Now we are going to convert the vendors who are prepay and adding freight charges to their invoice to collect with your preferred carriers.
Right now, I want you to refer to the prepay and add vendors list you created in Step 1. This is the list of vendors who you've identified where it is cheaper to route via collect vs. their marked up freight charges.
The way you are going to do this is this - one-by-one you will advise your vendors to follow your routing instructions (which you created in Step 2). Most vendors that are prepay and adding freight should be more than happy to follow your shipping requirements. Although it may be a profit center for them, they'll likely rather make you happy than not comply. So today's lesson is all about putting the extra profit your vendors are making on freight into your pocket where it belongs.
Sometimes vendors will push back on your routing instructions. But that's too bad because its your money they are messing with! If they want to absorb freight bill with the no extra costs to you, then that is their prerogative. But if it is going to cost you more to ship by their method, then you need to convert this or take your business somewhere else.
If you do feel vendors are hemming and hawing, and you don't want to get ugly with them, I have a strategy. Here are some nifty comebacks that come in handy if vendors give you a little guff about your new shipping instructions.
Here are some sample explanations you can use as to why you are requesting the change:
- "Congestion on our receiving dock is a big problem so we need to cut down on the number of carriers showing up everyday."
- "Our company is on a journey to supply chain excellence and we want to have visibility to every part of our business we can control."
- "We want to collaborate better with our suppliers to streamline processes as much as possible."
However, it is not necessary to go overboard explaining things with suppliers. Through Step 1 and Step 2, you've learned that they are making extra money on you so there is no need for over-explaining anything. Plus, at the end day, suppliers should be making their profits on the products your buying, not freight. So they should comply.
There may be some legitimate reasons why your vendors cannot use your shipping instructions (like they may be in a remote location). You'll have to weigh some of those instances out. But for the most part, this exercise should be a nice windfall of cash for your company if you have more than a few vendors who have been shipping prepaid and add.
Go through each vendor you found that is costing you more under their prepay and add program and convert them to collect with freight carriers you have rates established with. Remember, we are setting the table for even bigger things so make sure your vendors know these instructions are requirements and not suggestions. Later in this series we will show you how to drive compliance around vendors who do not follow your instructions. For now, go ahead and tackle what we discussed in this step.