Inbound logistics: If you are not controlling it, the fact that you are probably being overcharged on transportation should be just one of many of your worries.
Many Purchasing people buy products “delivered”, which means that the cost of the transportation is rolled into the cost of the product. The advantage to Purchasing is that they do not have to worry about choosing the carrier. They can “blame the vendor” if there are any problems (late delivery, damage, loss, etc.) with the shipment. This is the easier path to take.
The challenges with this decision are several:
- You don’t know when the product is shipped
- You don’t know the mode of transportation
- You don’t know the name of the carrier
- You don’t have the tracking information
- You can’t schedule receiving
- You can’t schedule production
- You can’t tell your boss, or the customer, exactly when the product will be manufactured or delivered to them
- You don’t know what it costs
Unbundling and controlling transportation costs with regards to inbound shipments solves these challenges. Some of the largest companies in the world count the success of this unbundling process as one of the biggest changes they can make in their businesses to impact profit. The difficulty is that it takes rigor and teamwork to accomplish.
In an ideal situation:
- The transportation team needs to be able to articulate and measure the labor savings and transportation cost savings of controlling inbound freight.
- Purchasing must review their vendor contracts to understand how they can separate transportation costs from the product costs. Understanding these costs provides a benchmark for hard dollar savings.
- Receiving must be able to articulate and measure the labor and inventory cost savings of having accurate visibility to inbound shipments.
- Manufacturing must be able to articulate and measure the labor cost savings of having an accurate production material schedule.
- Then, the team must align with the right partner (3PL and/or Transportation Company) to help manage this whole process and realize the savings.
Some of the savings can be realized without the “ideal situation”, but it is more difficult to measure.
Managing inbound transportation is a complex process, but the hard and soft cost savings of controlling it far outweigh the cost of not doing it.