How to Save Money on Your Inbound-Freight Program
By Nicholas C. Isasi
Your vendors probably bundle freight expenses with the cost of goods and then give little consideration to the price to ship those items to your distribution centers. Indeed, most vendors actually use freight as an additional profit center. The markup for vendor prepaid freight can reach as high as 40 percent.
That's why properly managing your inbound freight expenses can make the difference between a marginally good year and a successful one for your catalog company. Inbound freight typically represents 2 to 4 percent of gross sales for consumer products companies. Yet inbound freight costs seldom appear as a line item on a profit and loss statement. That's unfortunate, because inbound freight often ranks in the top eight of all operational expenses. When your supplier picks the mode of transporta tion and carrier, then includes this expense in your cost of goods, you may not be getting a chance to save costs.
To become a lean inbound-shipping machine, conduct an audit of your current processes. Start by reviewing who your vendors are and from where they ship. Then determine the volume in each lane (that is, pickup and delivery point combination) and the merchandise class being shipped. Break out the data by what's shipped internationally, by less than truckload (LTL), by full truckload (TL) and small packages.
Next, discuss with your purchasing, receiving and customer service departments the visibility your company has and what it needs regarding shipments and transit times in each lane. Conducting a lane-by-lane benchmarking analysis will enable you to identify poor carrier service, inefficient routing decisions and sky-high rates on inbound shipments. In the lanes with particularly poor service, start to implement changes by switching to the carriers with whom you've negotiated.
Next step: Save cash. Allowing suppliers to set rates and assign classification codes is like giving them your wallet. Many merchants lack the experience necessary to negotiate effective rate contracts and ensure the product classification codes are correct. The audit, then, becomes the backbone of any solid, vendor inbound-freight program.