If you work in a procurement or purchasing role, you’re probably involved in purchasing inbound materials. These might be raw materials for a manufacturing facility or perhaps finished goods (if you work for a retail organisation). In any event, you and your team can make a positive impact on supply chain operating costs if you improve your understanding of inbound freight costs.
In many supply chain companies, the procurement department has responsibility for buying materials, but pays little attention to the cost of getting them into their companies’ hands. Here are some of the reasons for your procurement team to buck that trend and do a little inbound freight cost analysis.
A Simple Need for Visibility
First and foremost, it’s well worth understanding how much your company is paying for the privilege of having the products and materials you purchase driven to your door. More often than not, suppliers roll their outbound transportation expenses up in the price of the goods they sell you. It makes sense to try and find out just how much of the price is covering transportation.
You can start by asking your suppliers to break out your invoices into separate lines for goods and transportation. This will at least give you an idea of the potential savings opportunities available.
Transportation: A Profit Centre for Suppliers
When the volume of goods you purchase from a supplier is aggregated with all its other customers, the
re is a good chance the supplier is getting a great freight rate from its carrier. At least there is likely to be some discount on the carrier’s base rates for transportation.
Is the supplier passing on the costs to you at the discounted rate though? There’s every possibility that you are being charged the base rate for transportation, while the supplier pays its carrier the discounted rate. That can mean the supplier is making a tidy profit on transportation, in addition to the mark-up on the actual goods you buy.
Put Inbound Freight Cost Control in Your Company’s Hands
Of course it’s not likely that your suppliers will disclose the margins they make on transporting goods to your facilities. However, you can safely assume they are making something, unless you have an agreement in place which stipulates otherwise. Once you have the knowledge of what your inbound freight costs are, your logistics team can make plans to take over management of inbound logistics.
This won’t necessarily be easy. Aside from the fact that managing inbound freight can be a pretty complex process, your suppliers may try to put roadblocks in the way. This is understandable, because as well as losing the mark-up on transportation, they are losing transport volume, which may impact the price they have to pay their carriers.
On the other hand, your company can benefit from lower overall transportation costs if it arranges for existing transport providers to move your inbound shipments. Plus you won’t be paying the freight costs that your suppliers were charging.
Collaborating for Value
Given the savings potential, the effort required to amend terms with suppliers and take on the task of inbound freight management can be well worth making. As a procurement specialist, you and your colleagues might be in the perfect position to take the first step and unravel current inbound freight costs. Armed with that information, the logistics department will have good reason to thank your team and work with you to investigate the next steps.