How to Save Money on Your Inbound-Freight Program

To maximize your leverage and negotiating power among carriers, consider reducing the number of carriers you use. Why? The essence of inbound-freight management revolves around the issue of control over vendors' uses of freight carriers and rates. A vendor routing guide (discussed below) serves as a key implementing device in an inbound-freight program. Take the information you've gathered from the audit and undertake the following:

1. Identify all costs associated with your inbound freight. Determine total annual costs for inbound freight, then calculate it by the percentage of gross sales. This gives you a cost baseline, so you accurately can track your cost savings.

2. Demand that freight be clearly delineated on each vendor's invoice. Don't accept pre-pay and added freight. While in many cases freight is prepaid and added to your invoice, there are many instances in which it's buried in the price you pay for each item. Working with suppliers to break out freight costs from the cost of goods isn't easy; the process requires frank conversations.

3. Adopt a core-carrier program that isolates carriers that are strong in given lanes. Having 20 LTL carriers backing up to your receiving dock can create continual confusion in your distribution center and become overwhelming to manage with existing resources. Working in the core-carrier program, you would identify pick-up coverage, service facility locations, financial stability, systems and technology prowess, and performance guarantees.

4. Evaluate and implement appropriate freight classifications for the items you ship. Every item has a National Motor Freight Classification (NMFC) number that equates to a classification and directly correlates to the rate charged. (The National Classification Committee develops and maintains the NMFC Guide that is regulated by the U.S. Department of Transportation's Surface Board.) The higher the classification number, the higher the freight rate. For example, a major toy company was using a freight classification of 125 for toys and dart games. This classification's freight cost in the existing traffic lane was $650 per shipment. By changing to the correct classification of 85, the freight cost was reduced by $226. Because the toy company was moving about five shipments per week, it was able to save more than $100,000 per year on just that one lane.