Optimizing Inbound Freight Beyond the Shipment Level
In this era of omni-channel fulfillment, supply chain visibility is more important than ever. Yet many shippers are still in the dark when it comes to visibility to a significant portion of their supply chain cost: their inbound freight spend.
Many inbound shipments are supplier-controlled with prepaid terms in which suppliers are adding in the freight charges to the product cost. This leaves the shipper with no visibility to their actual inbound freight spend. As a result, shippers are paying for this lack of visibility in the form of higher total cost.
The Markup Issue
Inefficiencies in supplier transportation management can be hidden in the product cost. Some vendors manage their outbound freight as a profit center, adding an additional 10%-15% or more to their freight costs, and passing it on to customers via prepaid and add terms.
Eliminating this markup produces immediate cost savings. Gartner research shows that when inbound freight is shipper-controlled and actively managed, companies see 4%-8% savings compared to supplier-controlled with freight included as part of the product cost.
You've Taken Control of Your Inbound, but Here's What You Are Missing
The majority of shippers that do manage to wrestle freight control away from their suppliers proceed to manage it at the shipment level, focusing on moving shipments from point A to point B. This activity is primarily operational and tactical in nature, affecting only 20% of inbound supply chain costs. Additionally, when inbound freight is only managed at the shipment level, shippers often have difficulty connecting shipment-level visibility back to the PO level. The process is manual and reactive, and significantly reduces responsiveness when issues such as shipment delays occur.Connecting shipment-level visibility back to the PO level will unlock the true savings potential within your supply chain.
Integrated PO vendor management systems and processes can provide seamless end-to-end PO-level visibility without having to manually connect the dots between shipment and PO level.
Supplier compliance is another component that is often overlooked when shippers manage inbound freight at the shipment level. When suppliers fail to follow the established processes, it can have devastating ripple effects downstream throughout the supply chain. For example, if a supplier ships product from a different location than the shipping master in SAP, transit issues, cost differences, additional CS activity and payment issues can occur.
A PO vendor management system should include comprehensive, systemic PO order confirmation to confirm information such as shipping location prior to these issues occurring. Comprehensive supplier scorecards measure and provide visibility to supplier performance and enable the implementation of supplier compliance programs that incentivize supplier performance and enable better supplier of choice decisions.
Unlocking Your Supply Chain's Full Savings Potential
In order to gain true end-to-end supply chain visibility and unlock the full potential for strategic savings opportunities, shippers must get beyond the shipment level to the PO level. This will be achieved by utilizing an integrated PO vendor management system and comprehensive supplier compliance program in conjunction with their inbound freight management.
Beyond increased visibility, the benefits include improved vendor management and compliance, reduced labor and overtime cost, reduced inventory cost, reduced payment issues related to supplier non-compliance, cost control enablement and visibility to cost of goods, reduced capital expenditures and improved on-time performance.
Contact a logistics expert at Schneider to discuss what an integrated PO vendor management system should provide for your company to see the best results possible.