Inbound Transportation: The Elephant in the Room
For a lot of reasons, outbound transportation gets more management focus than inbound transportation. It’s what the customer sees and the costs are more easily quantified. Inbound transportation gets much less focus because it’s typically embedded in the supplier’s costs and not controlled by the transportation organization. Preliminary results from a recently completed survey “Transportation Management Strategies and Tactics of Top Performers” shows that only 24% of the respondents considered inbound strategies important to improving the value of transportation management to their company. Yet, 50% of the respondents struggle with showing the value of transportation management. If your organization is looking for logistics cost savings and improving supply chain effectiveness, inbound transportation could be the welcomed “elephant in the room”.
What are the transportation opportunities?
There are numerous inbound transportation strategies that can be deployed to significantly lower inbound transportation costs. Here are just a few.
- Suppliers don’t optimize their logistics for your supply chain. This means that, across your supply base, there are transportation inefficiencies where smarter consolidation or leveraging economies of scale can lower transportation costs. For example, a midsize distribution company had many bulky LTL shipments could save $4M per year by taking control of the freight from those high-volume suppliers.
- Parcel is another area where there may be a high volume of small time-sensitive shipment and even “drop shipping” to customers where inbound is now actually outbound too.
- Utilizing the delivery fleet open backhaul to minimize inbound costs or take advantage of supplier pick up incentives can quickly result in lower overall transportation costs.
- Companies who are considerably larger than their suppliers can use their higher shipping volumes to create considerable savings without significant reengineering of the inbound transportation network.
Savings beyond transportation
Controlling the inbound movement of freight can also benefit other areas of the supply chain. There will be better visibility to the status of purchase orders and their related shipments. Volume can also be leveraged to have smaller shipments more frequently to drive down inventory and reduce out-of-stocks. Cycle time can be reduced as goods can be pre-deployed and cross-docked when they arrive at your DCs. There is also greater ability to make last minute changes due to supply chain disruptions or other events when freight can be controlled in transit.
Total supply chain effort
Creating an inbound transportation management program requires broader supply chain involvement. Inbound transportation costs are owned by purchasing/buyer organizations and tend to be set during supplier negotiations or baked into the product costs. Getting their buy-in is critical to establishing and maintaining an inbound transportation program. Establishing a case for reduced costs and faster and more flexible delivery will be consistent with their objectives and creating shared metrics will keep both organizations aligned. Another important ally is the finance organization. There is no company I know where the finance organization isn’t looking for cost reduction opportunities. They will also be an excellent source of information you will need and the validators of the opportunity.
Where to focus
There is money and other benefits to be had, but transforming to direct control of inbound transportation is real and continuous work. The focus should be on high-return inbound shipments and defining where not to put any effort. For example, start with the top 20 suppliers in terms of inbound shipment volume, LTL shipments of larger goods, or geographies where there is a significant concentration of suppliers. Equally, question the need to take control of goods where shipments are infrequent or there are no real opportunities for consolidation.
What about the rest of the inbound freight?
Just because you won’t control it, doesn’t mean that your organization won’t want the same detailed purchase order and transportation information you will have for the inbound freight under control to better utilize the goods as they arrive at your facilities. Establishing communication guidelines for the purchase order to delivery life-cycle and leveraging visibility and dock appointment scheduling technology can help provide better the key information to improve inbound operations.
With all the pressure for better customer delivery performance, it’s easy to miss the inbound transportation opportunities that exist. However, the cost savings could be significant and it’s time to stop stepping around the inbound elephant that is in your transportation room. How is your company tackling its inbound transportation opportunities? Let me know.