There are many opportunities for realizing major savings by controlling inbound freight spend. Bruce Wyre, principal of Morrison Solutions LLC, shows how companies can approach this complex but critical issue.
Industries across the board stand to gain by reducing the cost of inbound freight. But the benefits are especially attractive to manufacturers with multiple sites, and a variety of indirect expenditures that support them.
Many fail to fully capture indirect spend, Wyre ways. "It falls [into] the cracks between corporate logistics and transportation, and the corporate purchasing group." Typically there will be a stronger focus on managing major contractors on the outbound side, as well as the acquisition of direct materials. Individuals at a given plant might be ordering a variety of goods without a clue as to the outbound contracts that are in place. Wyre helps companies to identify that spend and leverage their existing outbound deals.
Enterprise resource planning systems alone aren't cut out for the job, he says. "There's no ERP in the world that will capture the data you need to really analyze this." Companies must track all inbound activity, including parcels and local deliveries. One prime target for examination is shipments for which suppliers are prepaying, then adding the charges to their invoices. Or, in Wyre's words, "sneaking it past."
It's not easy to get full visibility of a supplier's cost of freight, especially when it's embedded in the cost of the product. Many companies rely on procurement cards, on which the amount of spend data "is typically pretty minimal," says Wyre. Often freight won't be broken out, and the receiver will have no idea whether the rate for shipping and handling was accurate.
Companies looking to gain control of their inbound spend need to convey specific instructions to their suppliers about shipping collect. "That takes time," says Wyre, "and there will be some pushback from suppliers. You're taking margin away from them, and they're not happy." He estimates that buyers can capture 20 to 30 percent of freight costs by achieving visibility of inbound shipments.
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