How to Control Your Inbound Shipping Costs
If you're looking to save shipping costs, take a look at inbound freight. Depending on the industry and size of the company, a business can spend more than 40% of its annual freight budget on inbound shipping, according to the Aberdeen Group, a research firm in Boston. A more efficient inbound program can minimize delays, save money and even reduce confusion. It's "a large area of opportunity," says Matt Melrose, vice president of operations LeanCor Supply Chain Group in Florence, Ky., a third-party logistics provider.
Given the benefits, it makes sense not to leave your inbound shipping strategies to your vendors. Take a look at these five strategies to help you cut your inbound shipping costs and streamline your company's workflows in the process.
1. Find your actual costs. It can be hard to get a sense for your cost per unit with inbound shipping. Suppliers can factor in a margin of error to account for fluctuations in order quantities and market volatility, according to C.H. Robinson Worldwide, a logistics firm. Additionally, if your suppliers are choosing your carrier, you might be paying a fee that combines shipping and product costs. The firm recommends you learn the actual freight costs by SKU and case to get more accurate pricing.
By unbundling freight from the price of the product, you can make an apples-to-apples comparison with vendors and know where you're getting the greatest value, according to Michael Lawrence, director of delivery and telecommunication services at the University of Nevada at Las Vegas. For best results, talk directly to your account representative at your vendor and loop in your vendor's fulfillment manager as well, says Lawrence. If your supplier hires the shipper, says Lawrence, keep the conversation between you and your supplier since that's where you have the business relationship and the most leverage.
2. Know what's negotiable. Keep in mind when negotiating with a carrier that longer-term contracts allow for deeper discounts. But shipping rates are only part of the picture. Unexpected fluctuations in fuel costs can erode your savings. Lawrence strongly recommends negotiating a cap on fuel surcharges up front. Fuel surcharges can range from 6% to 30% of transportation costs, he says. Vendors may agree to discounts on published fuel rates but then assess fuel surcharges to make up for the discount, he notes. Fuel prices can increase significantly depending on market forces, but typically don't decrease or stay at decreased prices for long. Setting a fuel surcharge cap can help protect your fuel rates from market instability, Lawrence says.
3. Standardize your inbound shipping processes. Take control of your logistics program by creating a stable, predictable process for inbound shipping that will reduce redundant or overlapping activities and set expectations for your suppliers, says Melrose. Obtain freight data on volume, frequency and cost from logistics or accounts payable. Review the data with a small internal cross-functional team, looking to minimize overlapping activities. Visit suppliers and warehouses to understand how products move and to pinpoint problems. Look over the shipping processes used by your suppliers and their various locations, seeking any differences and if those differences can be traced to problems such as late deliveries. If various factories or vendors persist in doing things their own way, "they will have trucks passing each other on the road," Melrose says.
4. Optimize your processes. Use mobile supply chain software to get visibility into orders and arrival dates. This can help you pinpoint areas where loads from multiple suppliers could be consolidated into one truckload to reduce congestion at the dock. It can even ensure that you received the products you were supposed to before the truck is unloaded, says Michael B. Lee, chief executive officer of Airclic Inc. in Trevose, Pa., which makes cloud-based software products to improve the performance of a company's supply chain.
Get recommendations from providers of compliance and safety software you already use, so all programs can be seamlessly integrated. Hardware providers, such as the makers of handheld scanners used in warehouses, can also help point you in the right direction. Additionally, industry associations are a good resource for recommendations to find a systems that will fit your business needs, says Lee.
5. Stress compliance. Once you've identified new processes and workflows, make sure your vendors comply. Different workflows and new operations require retraining and documented guidelines for everyone involved explaining the purpose for the new processes and why they've been created. Make sure to modify the shipping terms on your purchase order so vendors are informed about new freight terms. Be prepared for resistance since some vendors struggle with change, says Lawrence. To get vendors to pay attention to your new needs, Lawrence suggests a routing letter that spells out shipping guidelines and instructions that the vendor must sign. Include a clause that explains that failure to comply may result in the vendor being responsibile for the freight charges. Without the signature, "We don't pay," he says.