Most Manufacturers Do Not Have the Visibility & Command Over Their Inbound Freight to Optimize 40% of Their Freight Budget

Aberdeen Group, a research firm in Boston, recently reported that manufacturers could spend 40% or more of their annual freight budget on inbound shipping. However, most manufacturers do not have the visibility or command of their freight to optimize their inbound shipping program. This impacts their ability to reduce costs and improve service performance to plants.

When manufacturers do not have visibility nor the ability to hold suppliers accountable, they pay higher transportation margins.

Many are letting their vendors with no vested interest manage their freight and their product. The vendors are shipping whatever they want against the PO and using whatever method and carrier they’d like, even if it increases the manufacturer’s transportation costs. This is happening because most manufacturers lack visibility into their inbound costs.

Just like their inbound raw materials, manufacturers’ inbound freight will have a margin on it. In many cases, it's bundled into the cost of the raw material. As a result, supply chain managers do not know what their true transportation costs are. These costs usually cannot be tracked back to the product level for the actual Cost of Goods calculations. Breaking down the data in more detail requires going through paperwork manually, logging into multiple carrier shipping portals, and compiling the information in various ways to analyze the problem. So, unless a specific question arises or someone makes a project of analyzing the inbound shipping spend, the actual costs of inbound shipping remain unknown.

When suppliers are not held accountable, manufacturers pay in terms of reduced service performance to plants and customers.

When vendors have command of the freight, manufacturers do not have visibility into what’s in transit, shipment locations, and when it will arrive. It requires piecing together information from internal paperwork, carrier websites, and phone calls. It becomes a time consuming and inefficient process.

Also, transportation managers who must rely on manual processes to track and trace freight, find themselves answering "it gets here when it gets here." This lack of predictability has ripple effects. I've seen CPG manufacturers have line-down situations because they did not get raw materials on-time. Their production plan was at risk, and it caused disruptions to the complete supply chain and customers. I also saw manufacturers become accustomed to sloppiness from their vendors and hold more safety stock in their inventory. They're increasing carrying costs because they do not have the visibility and predictability. 

Manufacturers cannot hold suppliers accountable due to gaps in traditional TMS capabilities.

Most TMS platforms, including Oracle, JDA, and MercuryGate do not have specific modules for inbound freight and do not provide the ability to scorecard, measure and hold vendors accountable. This is why manufacturers have limited control over whether routing guides are followed and why vendors are given great leeway for mismanaging freight and purchase orders.

The traditional platforms manage an inbound load, just like every other load. It's a transportation move only. But, it's much more complicated than a transportation move as there are two parties engaged. The vendor needs to confirm a purchase order. If the TMS can't manage that within the TMS, they're confirming a PO with a different system. They need to identify the date that it will be ready and confirm the purchase order date. They need to confirm the quantity, and they need to accept the carrier. If it's not managed through one system, the vendor has an enormous leeway in terms of whether they follow your shipping guidelines. And it's challenging to hold the vendors accountable.

Because inbound freight is not managed with one system, Fortune 100 manufacturers, industrial supply retailers and CPG companies have created manual systems. Their purchasing manager is spending hours and hours working on spreadsheets to hold their vendors accountable for compliance to PO. I've seen other companies create departments of supply chain managers working off spreadsheets.  

If you have all the information in the TMS, in one system, you’re able to scorecard your vendors and your carriers directly through your TMS. You can work with your vendors to assign a value to the scorecard. And, you can put a penalty system in place (like Walmart’s OTIF program) where vendors share some of the cost if they do not comply to their purchase orders.

Gain Control & Visibility Over Your Inbound

The bottom line is that when a supplier fails to adhere to shipping requests, the buying company bears the additional freight expenses. This includes costs resulting from delays in receiving purchased items, supply chain disruptions, and a lack of visibility into the shipment. 

Through my experience at Schneider and now at RGL Logistics, I’ve seen firsthand how managing compliance to PO is worth 10% - 15% in costs. When you look at the advantage in managing the freight, plus the advantage in cost and compliance to PO, it’s staggering the cost impact of not managing your inbound effectively. Shippers should be managing as much of their inbound freight as they possibly can.

Managing inbound shipping is challenging, and it’s why 75% of companies surveyed by the Aberdeen Group report that inbound freight management is a key focus point. Fortunately, you can manage your processes, increase visibility, and gain control of your inbound freight costs with new automated tools and managed services. But you need to know what you are looking for when it comes to automated tools, systems, and integrated services.  

Connect with me on LinkedIn to learn about new technologies and processes that will improve service performance to your plants while reducing costs. Also, please join my On Time, In Full Logistics Group.