InBound Logistics
Enhancing Profability
through Inbound Logistics
What You Don’t Know About INBOUND LOGISTICS
Could Be Costing You
You probably have a good handle on your Outbound Logistics. It’s a critical link
connecting you with your customers, and many companies have already found ways to
drive down outbound logistics costs and become more efficient.
Unfortunately, what you don’t know about managing your inbound logistics process
could be costing you a lot of money.
Money that could be going straight to your bottom line.
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Enhancing Profitability through Inbound Logistics 1
INBOUND LOGISTICS is the management of goods
and materials into your manufacturing locations from
your suppliers or co-packers.
While inbound logistics can apply to virtually any industry, we’ll use the fictitious ABC
Medical Supply Company to illustrate what can happen if you don’t have control or
visibility into the flow of inbound logistics from your suppliers.
ABC Medical’s Cost
Delivered Pricing
Manuf acturer Manages Carriers
Cost of Goods
Manufacturer’s
Transportation C ost
Savings
Accrues to
Manufacturer
Supplier’s Cost Using Low-Cost Carrier
Cost of Goods
Supplier’s
Transportation C ost
Additional
Margin
ABC Medical Supply has just engineered a breakthrough diagnostic tool and has firm
deadlines to deliver the product to hospitals and clinics all across the country. Typically,
ABC’s procurement department chooses specialty component suppliers based primarily
on getting the best material price available. It is “delivered pricing,” meaning that the
cost of transportation is built into the price of the materials, and ABC’s suppliers have
complete control of carrier selection and timing of the shipment.
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What Issues Can This Create?
UNKNOWN TRANSPORTATION COSTS For one
thing, ABC’s suppliers try to protect themselves from unknown transportation costs. These transportation costs are driven by
market capacity and demand, and often include a significant safety margin
in their delivered pricing. These built-in costs make it difficult for ABC to understand the true cost per unit for their material purchases.
To make matters worse, if ABC’s suppliers negotiate better pricing with the
carrier, the supplier keeps the additional margin. So naturally, the supplier
has a huge incentive to use the low-cost carrier, but they pay little attention
to service or quality of carrier.
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LACK OF OPTIMIZATION
Another issue a company may face is the lack of
optimization in their shipments. In order to manage
their inventory carrying costs and get paid quickly, ABC’s
suppliers move products off their docks as soon as possible.
A fair-enough motivation, but based squarely on the supplier’s
best interest, not necessarily the best interest of ABC Medical
Supply.
►Often materials arrive by LTL carrier without any consideration of load optimization or consolidation.
►Consolidation of materials is generally ignored. More efficient modes are overlooked.
►ABC will often receive multiple LTL shipments from the same supplier each day, especially near
the end of the month or quarter.
►ABC has no control over when goods are shipped, and no clear visibility into when carriers
will arrive at their facilities.
As a result ABC makes educated guesses for planning
shipment-receiving labor each day.
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Benchmarking Against
Different Metrics
But, ABC Medical Supply’s biggest issue may be that they don’t even realize that
this “problem” exists. This can occur because key departments within a company are
siloed. Procurement is charged with negotiating the best possible price of goods, but
since they rarely interact with Corporate Finance, they are actually working toward
different metrics than the broader end-to-end efficiency goals of the CFO.
The bottom line for ABC Medical Supply: efficiency is
lost; costs increase, and those firm orders to customers
potentially become backlogged or, even worse, lost
business.
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Enhancing Profitability through Inbound Logistics 5
The Growing Case for
Change
In today’s environment, those costs are
much tougher to absorb. Allowing suppliers
to choose carriers, negotiate rates, and pay
the transportation charges results in your
company paying for both the product and
the transportation costs on your suppliers’
terms. Control is lost, and that comes with
consequences.
This scenario with ABC
Medical Supply illustrates two
painful yet common issues that
typify inbound logistics today:
When suppliers have the control, they’re not
worried about finding ways to maximize loads
and minimize transportation costs. They just
want to get product out the door as quickly
as possible so they can get paid as quickly
as possible. Opportunities to consolidate
shipments or shift from LTL to full truckload
are lost, along with potential savings. Like any
good business, suppliers will strive to structure
a pricing agreement in their favor. Then any
freight rate reduction they can negotiate after
that enhances their own margins, at their
clients’ expense.
Suppliers don’t have skin in the game to
optimize their clients’ inbound processes.
Senior financial leaders often don’t have
insight into how these inefficiencies are
chipping away at their company’s cost
management, service to customers and
profitability.
During periods of fast growth, many
companies do not worry about the embedded
costs vendors pass along to them. Growth
covers up or marginalizes inefficiencies and
unnecessary charges.
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A Roadmap to Optimized Inbound Logistics
If you don’t manage your inbound logistics today, or if you rely on your
suppliers like the ABC Medical Supply does, a critical first step is to
separate transportation costs and the actual cost of the goods. This
additional detail may mean renegotiating the terms of sales and materials
agreements with your suppliers.
Or, perhaps you do manage inbound logistics today. But you lack effective
processes or tools to gain control over supplier compliance and drive
cost savings. By incorporating the benefit of transportation management
software (TMS) technology, you can dramatically improve visibility into
shipment activity, ensuring delivery of the right product to the right location
at the right time and through the right mode.
Today, companies have another option to help deliver an improved inbound logistics program. They can partner with a third-party logistics (3PL)
provider who has the experience, proven technology and processes to
help control and coordinate inbound logistics. Outsourcing inbound logistics to a 3PL doesn’t require a large capital expense for technology, plus it
can be implemented with a seamless EDI integration and full back-office
support. You gain expertise, objectivity, a single source of accountability
and cost savings.
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No matter what option you choose,
A KEY PROCESS CHECKLIST
for any Inbound Logistics program
should include:
✓
✓
A review of supplier business processes, terms of sale, etc.
✓
Identification and mapping of your own internal processes for ordering and
managing suppliers.
✓
✓
✓
✓
Monitoring supplier shipments to verify that orders are shipping on time.
Ensuring advance notice of late shipments to enable the adjustment of
receiving and production schedules, as well as labor, is critical.
Deployment and use of TMS technology that will allow for consolidating
shipments and optimizing transportation modes, where possible.
Reporting on supply chain performance and unit cost metrics through monthly
Key Performance Indicators.
Using data analytics to gain insights for driving efficiencies and pinpointing
problem areas.
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The Financial Benefits of a Well-Run
Inbound Logistics Program
The best news is that gaining control over inbound shipments doesn’t have to come
with significant capital cost, and it can provide a quick return on investment. For
example, a 3PL solution offers Web-based TMS tools and cost-effective processes
that deliver supplier routing compliance and drive an array of improvements that all
have economic benefits. These include:
1. Evaluating LTL shipments from all suppliers and developing a
strategic approach for grouping individual orders across facilities and
consolidating them into a single truckload to common destinations.
2. Lowering inventory carrying costs by ensuring suppliers’ goods
arrive on time at the optimal cost of arrival.
3. Sending manufacturers or suppliers advance shipping orders to help
them plan staffing requirements and avoid confusion at the loading
dock.
4. Working with transportation carriers to add inbound lanes that
balance outbound lanes to further drive lower rates.
5. Aggregating transportation spend to reduce cost at no sacrifice of
service.
6. Minimizing or eliminating shipping delays.
7. Ensuring the right carriers are involved in the client’s inbound
logistics strategy.
8. Housing short-term or overflow inventory in “flex-space.”
9. Organizing a first-in-first-out ocean container, port docks-todistribution center handling process to avoid unnecessary and costly
container detention fees.
10. Providing a user-friendly window to manufacturers, through webbased TMS. TMS shows the progress of inbound materials and
when they’ll arrive.
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Conclusion
It’s difficult to fix problems when you might not even be aware you have them. With focus, you can gain the upper hand in managing inbound logistics, driving supplier routing
compliance, reducing costs and improving efficiency. Furthermore, when inbound logistics
processes are combined with a well-run outbound program, further cost efficiencies can
be realized.
An experienced 3PL service provider can help you discover and choose the best path and
execute the program that will best serve and improve your inbound program.
For more information on getting help managing your inbound logistics, please visit www.
OHL.com and/or call (phone number).
About OHL
Based in Brentwood, Tenn., OHL is one of the largest 3PLs in the world, providing integrated global supply chain management solutions including transportation, warehousing,
customs brokerage, freight forwarding and import and export consulting services. OHL operates more than 130 value-added distribution centers, offers comprehensive transportation management services, employs nearly 6,000 people and has offices worldwide. OHL
has expertise in direct-to-consumer fulfillment, serves a wide range of business sectors
from specialty retail to manufacturing and specializes in the apparel, electronics, printing,
food and beverage and consumer packaged goods industries.
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