Best Practices for Implementing an Inbound Freight Program Successfully
There is a significant difference between inbound and outbound freight characteristics. Think of inbound as the lifeblood that feeds an organization’s ability to produce high-quality products in the quantities demanded for its customers, and outbound as the delivery of its end salable products going out to its customers.
Done right, inbound freight management does more than just help companies gain an understanding of where their shipments are at any given moment. It also encourages better supplier-carrier-customer relationships, reduces the need for excess inventory, improves reliability across the supply chain, and creates an atmosphere of accountability for all supply chain partners.
Both inbound and outbound freight are extremely important in their own regards but have been managed quite differently over time. Outbound has been managed internally by the logistics team, while inbound has been managed by a company’s suppliers.
Since the inbound freight costs are typically managed by a company’s vendors, the freight cost is elusive because they are hidden in laden costs and siloed in procurement departments. To help shippers get their arms around the total cost of inbound freight spend, the Aberdeen Group conducted a study and found inbound freight can consume 40% of an average organization’s annual freight spend or 3.6% to 5.2% of a firm’s total annual sales.
What seems to be 100’s of articles on inbound freight management and its benefits is then followed by very few on how to implement an inbound program. The reason for the lack of articles is it is a difficult task that often leaves many organizations frustrated and eventually deciding to focus on other priorities.
Don’t despair, we are here to not only share why an inbound freight program should be a priority, but also how to implement it successfully.
Let’s step through why implementing an inbound freight management program can be difficult so we can hit them straight on when we get to the discussion of how to successfully implement an inbound initiative.
Difficulties in Implementing an Inbound Freight Management Program
Vendors are Reluctant
- Remember your outbound is another company’s inbound, so imagine your reaction if one of your customers asked to manage their inbound.
Inbound is Siloed into Other Parts of a Company’s Organization
- Purchasing can pushback because they view the supplier relationships invaluable and feel they will be damaged through such a move.
Inbound Freight Hidden in Landed Price of Goods
- Visibility to the cost and the process to break the supplier cost from the freight cost can be a difficult process.
- Remember that the supplier base has profit in their freight charge, so they do not want to give it up.
Company Lacks the Technology to Make the Leap More than Just Cost Savings Program
- Inbound freight management is more than a cost, and many do not see the other benefits.
Organizational Benefits of Inbound Freight Management
While you have probably seen a similar list on the benefits of inbound freight management in other articles, it makes sense to add the benefits here to serve as a reminder because part of the sell to the procurement department has to be to educate them on the initiative.
Reduce Freight Costs
Improved Supply Chain KPI’s
Better Resource Management
Shorten the Order-to-Cash Cycle
Improved Dock Management
Vendor Relationship & Management
Visibility for All Supply Chain Stakeholders, when Incorporated into Top Tier TMS
Improves Reliability Across the Supply Chain
Creates an Atmosphere of Accountability
Positive & Proactive Communication for Internal & External Supply Chain Stakeholders
Best Practices for Inbound Freight Management Implementation Success
As many of you reading this blog have discovered that while inbound makes sense to manage yourself, you’ve also come to realize that you may need some help because it is not easy getting over the hurdles that exist in taking control of the process.
Every good idea is just a dream until a concrete plan can be assembled to move the idea into a reality. So with that in mind, let’s jump into how-to implement an inbound freight management program successfully.
Get Buy-in from the Procurement Team
The procurement team will be the one most impacted to the change of a prepay and add supplier relationship to an inbound freight management program making them your number one priority to getting onboard. It is imperative they understand all the aspects of why it’s important for the company to have a successful inbound freight program.
Make Sure All Stakeholders Understand Managing Inbound is Bigger than Cost Improvement
You saw the list of benefits earlier in this article. Memorize the list and always educate the stakeholders of why inbound freight management holds such great importance to an organization. If everyone is just thinking this is a cost savings opportunity, they will miss the bigger point to be taken away from this project, which is this is one of many steps a company can take to change over its supply chain efforts from a cost center to a competitive advantage.
Include the Suppliers in the Process
More often than not, a company will be able to improve its inbound freight cost and service with their own program, but there are times this may not be the case, so don’t put your head down and just plow forward. Listen to your procurement team and vendors for possibilities and have them bring the hard facts to the table.
- If it is decided to have a particular vendor is going to manage their freight, have them break the cost out on the PO so you can continue to monitor the cost against the rate you obtained. It is your right to know the cost. You don’t buy anything today without knowing the cost, so why start now?
Know the Costs of Each Lane
A company going into an inbound program needs to get their hands on the actual market cost for its inbound lanes. Going in just saying we are going to save money and improve service can be a disaster. The facts must be present to be taken seriously as a partner with any of your suppliers.
Implement a Standard Inbound Routing Compliance Guide
There needs to be a set of guidelines around any program, so the players understand the rules of engagement. An inbound freight program is no different. While the majority of suppliers will understand that this program is also a vendor managed program and will follow it, you will have some outliers that will not, and for that reason, a comprehensive inbound routing guide is key.
The inbound compliance guide needs to include an inbound routing guide and a compliance guide.
The routing guide will give specific direction on carriers to be used, while the compliance guide will give specifics around how your freight is to be packaged and labeled and speak to communication channels, ASN’s, penalties if the guide is not followed, etc.
- The routing guide will tell vendors how-to route your company’s freight for the various rate breaks, service levels, origin and destination pairs and distance.
- The specifics of the guide will include the carriers and account numbers to be used when routing the freight on the specific carriers.
- A must to any routing guide is a dynamic rate allowance program for freight cost chargeback for those suppliers that decide not to play within the rules.
- As part of the dynamic rate allowance program, you’ll need to implement a deduct from invoice capability within the inbound TMS (transportation management software) program that feeds the ERP / OMS system.
- It’s key to have a dynamic rate allowance to adjust for the characteristics of the freight that is being delivered outside the inbound freight program, otherwise the penalties will not be addressed fairly and accurately.
- For example, if you have a $250 chargeback for not using your vendor management program, you’ll have the larger quantity at the greater distance often not complying because the penalty is less than the profit they have in their freight program. Vendors in close proximity or of lesser scale will comply because the penalty far exceeds their internal costs.
Vendor Compliance Guide
- The Vendor Compliance Guide covers the engagement points with your company. Some of the specific points include:
- Carton Size
- BOL Requirements
- Packing Slip Requirements
- ASN (Advanced Shipping Notice) Requirements
- Pallet Requirements
- Carton Configurations and Pallet Configurations
- This is to ensure the product will fit your racking and pick locations within your distribution center.
- Packaging Requirements
- If there is a system to be used to log the shipment to be sent inbound, give a tutorial of how to utilize the system that includes a step-by-step document with pictures.
- Establish Penalties for Enforce Supplier Compliance and Improve Behavior
- As part of establishing penalties, be sure that it is clearly articulated and everyone involved with the standards has a complete understanding of how the penalties will be enforced and what the penalty charges will be for each infraction.
- Keep in mind, these penalties are not to be punitive, but to reimburse your company for the additional labor charges or freight charges your group will be incurring because the supplier did not comply with your standards.
- Known the majority of vendors will never hit the penalties section of the routing guide, but it is not intended for them. The penalties are established to ensure everyone is encouraged to comply.
- Capture Data for Reporting & Analytics
- The key to capturing the data is to learn where the wins and losses are occurring within the inbound process to make improvements and to put into the procurement process another measurement on the quality of the vendor.
Implement a TMS Inbound Freight Management Portal
Include a portal for communication to and from all internal and external stakeholders for full transparency of the inbound process that covers the who, what, where, when and quantity.
The TMS supplier portal allows stakeholders to have visibility to its inbound orders, providing visibility to all activity in real-time. Keep in mind the TMS will be more than a freight system, so the portal can also be used to keep track of any violations and alert the appropriate parties when a change occurs.
The system will also capture analytics to measure savings and find additional areas for improvement. The TMS will capture every relevant piece of data that will then provide reports, dashboards and scorecards that allow to analyze the inbound freight program and identify opportunities for increased efficiency.
Ultimately, a good inbound freight management program powered by technology can help shippers achieve cost and productivity goals that very often get overlooked in the logistics space.
With all that said, the quality of this portal and ensuring it is real-time is a game changer on the inbound freight management process. Many will find they had no idea what they didn’t know and its impact to their company’s performance.
Not only will the TMS be the communication tool between stakeholders, but it will be the freight execution and reporting module to optimize all freight being moved into an organization.
- Try not to get too fancy on the front end of the project. There will be plenty of gains had just on the freight savings from the one-to-one moves.After 30 to 45 days of data has been collected, you can begin optimizing the freight around pooling and consolidation, modal conversion, etc to get the most out of your company’s freight spend and reduce the carriers bumping the receiving dock every day.
- The reduction of trucks at the receiving dock every day will improve the speed and accuracy of the receiving process and as most of us understand 80% of a DC’s issues can be traced back to a bad receipt.
Build Strong Carrier Alliances
- Understand your outbound carriers may not be your inbound, but know that if they are there will be additional savings to be had by turning the inbound trailers at the dock to outbound. Time and distance is money for motor carriers, so by limiting the miles and guaranteeing a pick-up at the dock they delivered to will bring tremendous cost savings.
Consider Outsourcing the Implementation & Process to a LSP
We know and understand many are wary of outsourcing any activity, but we’re here to say this is a good process to consider outsourcing and here are the reasons why:
- LSP’s (logistics service providers) have the technology, experience and market data to increase the odds of success.
- Since the LSP does this work for a living, they will be able to implement the procedures, process and systems quicker implementation, which will bring a much faster improvements on cost, service, communication and ROI (return-on-investment).
- The outsourced model often is far less expensive because of capital required for technology and the resources required to bring up a new system and maintain it.
- An outsourced logistics partner can quickly access market data and create the dynamic rate allowance chargebacks for non-compliance that will enforce and encourage supplier compliance, which was a key element of success.
- The TMS the logistics providers has will be the unified platform for communication and freight optimization that is required to build the competitive advantage the boardroom will be looking for from the inbound initiative.
- The LSP will also bring in best practices at the front end of the program to the very end to ensure the inbound program gets off the ground and has forward momentum versus inertia that is often found when implementing such a change to an organization.
- The simplicity of managing the routing guide is exponentially easier and better with an LSP. The reason is they will be the call center vendors will call into to get the routing specifications. This will allow the routing guide to be dynamic by the day and to help companies gain the very most out of how to route fright the most efficient way possible as they are on the front end of the decision with their TMS.
- Also, as the call center for all the vendors, the LSP can also enforce the input of the data at the front end of the process to begin the critical communication required to optimize the program and hold all stakeholders accountable.
Final Thoughts on Implementing an Inbound Freight Management Program
By taking a step back and gaining a better understanding of your current inbound product flow, then working with suppliers and the procurement team with a plan that can be managed through your TMS technology and carrier partners will enable you to leverage all of the market’s capacity, get the best rates, and gain better visibility over your end-to-end supply chain.
So, whether your company calls the inbound freight management program, just that, or a freight term optimization (FTO) or vendor management program the expectation is all the same. Improve costs, improve the inbound flow of the business and help build your company’s competitive advantage with a superior supply chain solution.
To get it done is not easy, but the results will be rewarding. We hope the information we shared is helpful and if you find you are looking for a partner in your inbound program, we’d love to be a part of the conversation so please look us up.
To learn more about InTek Freight & Logistics, we can be found at www.intekfreight-logistics.com or you can become a subscriber to our blogs to tune into weekly ideas on how to improve your logistics and supply chain tactics and strategies.