How to Take Control of Inbound Logistics, And Outsmart Vendors

by From the Top on 2011-09-13

George MuhaOne area that is typically ripe with opportunity for companies to capitalize on is inbound logistics. Historically this area has been an afterthought for companies but the available cost reduction, operational efficiency and overall value it brings is too significant for anyone to ignore anymore.  I personally feel that, with the way companies are seeing the value of achieving supply chain excellence, NOT taking action itself on inbound will eventually be costly to the entire operation.

The issue I notice for a lot of companies is they don’t know where to begin or they think they do but fall way too short to make an impact.  So that is why I’m breaking this concept down in this article.  I’ve put together FIVE STEPS TO EFFECTIVELY CONTROL INBOUND LOGISTICS that can prove to be good roadmap for companies to follow.  Every company is different so this guide is not the end all, be all.  But this approach or variations of it have yielded great results for many companies.

Before I delve into these steps, I do want to underscore the value of talent to this whole project.  Handing this outline to “Suzy the intern” and telling her she’s got five weeks to squeeze savings out of inbound won’t do anyone any favors.  It is imperative the person or persons in control of managing this process has experience with this.

I’ve created this in outline format because I feel it’s easier to follow than an essay. SUGGESTION: This set up also allows readers to check off areas of their operation where they feel they have a good handle on.  Marking these bullets can be a good score card of the current state of things.

So without further ado, here are the…

FIVE STEPS TO CONTROL INBOUND LOGISTICS:

1. Set the Table
: Before an artist creates his masterpiece, he needs to start with a clean pallet.  Same thing with architecting inbound excellence.  If a structure is going to be built, a sound foundation must be poured.  To accomplish this, these three areas have to be in tip-top shape: 

Talent:  As I said in the opening, the right talent needs to be driving this process.  Having the experience of what to do and, more importantly, what not to do will save a lot of aggravation, time and money.  Without the right person or team involved, this project doesn’t have a chance and someone might get hurt.

Transportation Rates:  Getting transportation rates in order is a must for a good inbound strategy to work.  Rates need to be skinnied down throughout all modes.

2. Evaluate Current Vendor Programs: There are three different ways transportation is set up from vendors; freight collect, prepaid & add and delivered price. Here’s high level how to tackle each scenario:

Freight Collect:  There is nothing much to be done here besides benefit from the leaner freight deals that were negotiated with freight carriers in Step 1.

Prepaid & Add:  Generally speaking, routing via a vendor’s carrier and having them mark up their rates with a “shipping & handling” fee tacked on is more costly than the consignee routing it themselves.  So conversion of this is easy. Conversely, vendors sometimes have sweetheart deals so making sure it makes financial sense before changing routing instructions with a vendor is a must.

Delivered Price:  One day I am going to write a totally separate essay regarding “delivered price”. I am going to title this article No Virginia, There Is No Such Thing as Free Freight.  Personally I do not like delivered price/free freight programs simply because the 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.   The solution to unbundling this hidden cost can be multi-layered and complicated.  This is where having the right talent involved pays scores of dividends.

3. Create Routing Instructions: Getting vendors on board with your plan is key part of controlling inbound transportation.  So it is necessary to generate a shipping guide for all vendors.  This routing guide must break down for each vendor which mode and carriers should be used based on weight, density and location.  Making certain no detail is left out is a must.  I’ve seen too many instances where the wrong mode was shipped with costly results because the routing guide was limited or vague.  Including a penalty for not following the shipping guides will usually ensure vendor compliance.  Most companies do not want to make a profit center off this (ahem, except for big box retailers – I KNOW, THAT WAS A CHEAP SHOT!). The point is to get inbound under control. Establishing a penalty system keeps everyone in check.

4. Implement the Right Technology: Having a TMS (transportation management system) is awesome to have. Many mid market companies do not have one because it is cost prohibitive, but achieving supply chain excellence is hard to accomplish without one. Here are some features that show the benefits of investing in a TMS for controlling inbound:

Vendor Portal:  Most good TMS systems provide vendors with a portal which eliminates the need for a routing guide. This portal allows vendors to identify the motor carrier, book the shipment and generate a bill of lading.  This basically eliminates the chance for routing and key punching errors.

Least cost rating engine:  Having a rating engine is hugely beneficial for purchasing people who are negotiating with vendors.  Being able to quickly glance at available modes allows purchasing to see the least cost or quickest delivering carrier with the click of a button.  This makes sure smarter decisions are being executed.

Inbound Tracking:  A good TMS will give visibility of all inbound shipments and their estimated time of delivery.  This is huge when it comes to planning, production and receiving schedules.

5. Establish Relevant Metrics: Companies cannot change what they don’t measure. So scheduling relevant analytics is significant to the evolution of inbound.  I can go nuts in this area, but here are some good metrics to start with:

Vendor Misroutes:  Being able to view a report that shows when a vendor uses the wrong carrier or mode is a must to keep vendor compliance where it needs to be.  This can also be used to issue chargebacks.

Frequency Report:  Viewing how much is being shipped from a vendor is helpful in curtailing buying patterns.  Purchasing managers might not realize how frequency they are buying from the same vendor in the heat of the daily routine.  But, being able to look at shipping patterns after the fact is helpful in identifying spots where consolidated purchasing with a cheaper shipping mode can take place.

Vendor Comparison Report: Looking at the cost per pound of two vendors that sell the same product can be very revealing. Amazingly, freight can be an afterthought when purchasing a product.  Although a vendor might have product at a lower cost, freight might make them much higher. This report is very handy.  FOOD FOR THOUGHT: Shippers can’t always assume that because a vendor is closer that they have lower freight rates. Another vendor might happen to be in a consuming market where outbound freight rates are very depressed.

Inbound Pool Distribution Reports: Money starts falling out of the sky when a customer is able to line up multi-stop pickups with a truckload carrier. The employee who is able to line these up has every right to ask for a big raise.

BONUS STEPS

1 .Collaborate with Vendors:
Once hitting on all cylinders, a company can start looking at ways to further drive down costs by collaborating with vendors operationally.  EXAMPLE:  I know a senior warehouse executive who is a master at collaborating with customers.  She has tons of great examples of how she has cut costs for both her and her customers, but one in particular sticks in my mind of how this can work great.  Once she visited a customer to see how they were receiving freight.  They showed her how they unpack her products from boxes, put the corrugated materials to the side for recycling and repack it into their own box for reselling. Well, my contact could see the redundancy right away and set up a system where she ships a sealed truck full of unboxed product once a week.   This saved the customer the time to unpack and cost of recycling while it saved her packing material and time.  In a lot of cases, allowing operational people at vendors to evaluate exactly what is happening with their product once received can end up with a similar beneficial outcome.

2. Give Yourself PR: Did you ever notice that certain companies announce to the world every time their company decides to go to the bathroom?  This is all about giving themselves PR.  If a company decides that they have an initiative to create excellence within their company’s inbound logistics, why not share it with the world? Nobody knows this is happening unless they are told. Plus it’s a great way to tell competitors, “Watch out because we’re about to go Walmart on your a**!” Okay, I’m sure that is not the message most companies would want to convey to their market, however with more than 85% of companies out there with no strategy surrounding supply chain*, an announcement that operational excellence is being mastered will surely make competitors in that space a bit nervous.

Getting every single vendor on board with this will never happen. There are vendors out there that have a great handle on distribution and get their product out the door at a lower cost than anyone else. So 100% compliance is not the target. Controlling 30-40% of vendors is a great starting goal. Achieving 60-70% is close to world-class.

Making a plan to control inbound logistics is a great way to start a supply chain strategy for a company. This guide will prove to drive down costs, improve efficiency and bring more value to the company. Once this process is matured additional steps can be added on to dig deeper. Supply chain excellence is really an ideal that is continuously maintained and tweaked.

George Muha is a fifteen year veteran of the logistics and supply chain industry.  George spends most of his time working with clients to successfully achieve a high level of operational efficiency within their supply chains.  He can be contacted at georgemuha@gmail.com.