I recently spoke to a dozen owners and supply chain managers of German e-commerce companies at an event in Frankfurt. When asked how people deal with inbound logistics, there turned out to be a very one-dimensional answer, namely: ME. Or Mail and Excel. These parties are so busy serving their (demanding) customer that the inbound customer remains virtually unexposed. And therefore far from being optimised. Definitely a missed opportunity.
In most organisations, outbound transport is in the spotlight. This is understandable: customers see this activity up close and the costs are usually easy to calculate. For inbound transport, the situation is different. In many cases, this is embedded in supplier costs and outside the control of the transport organisation, whereas there are opportunities for cost savings in this area. The Descartes survey Shippers on the road to logistics excellence and cost reduction shows that the biggest challenges within the logistics organisation are cost reduction (74%), gaining financial control (45%) and improving insight into logistics flows (44%). Furthermore, half of the respondents struggle with demonstrating the value of transport management. Inbound transport could well be the hidden treasure for companies looking to reduce their logistics costs. Moreover, greater insight into inbound transport helps improve supply chain effectiveness, which 44% of respondents say is of significant importance.
Where are the opportunities for inbound transport?
There are several inbound strategies to be developed that drastically reduce the cost of inbound transport.
- Suppliers do not optimise their logistics with your supply chain in mind. That means transport inefficiencies among your suppliers. Through smart consolidation or exploiting economies of scale, transport costs can be reduced. Does your company have a lot of LTL (Less-Than-Load) deliveries? Save costs by taking control of supplier freight yourself.
- 'Drop shipping' directly from manufacturer to customer, where inbound basically equals outbound.
- Using the fleet for open backhaul to minimise inbound costs, or offering incentives to suppliers to pick up freight, quickly leads to lower costs.
- Companies that are significantly larger than their suppliers can leverage the higher delivery volumes to realise savings, without a drastic change in their inbound transport network.
Savings beyond those of transport itself
Managing inbound transport also provides benefits within other parts of the supply chain. For instance, there is greater insight into the status of purchase orders and related deliveries. Volume can be leveraged by making more frequent small deliveries, reducing inventory costs and preventing out-of-stocks. Cycles can be shortened because goods can be deployed earlier and cross-docking is possible when they arrive at the distribution centre. In addition, situations within the supply chain can be anticipated better, as it is easier to make last-minute changes.
It's all about the total supply chain
Creating an inbound transport management programme requires the involvement of the broad supply chain. The cost of inbound transport is often borne by the buying party and during supplier negotiations, it is determined whether these costs are included in the product cost. Broad involvement of both supplier and buyer si needed, with joint targets and measuring points agreed upon. In addition, the finance department has a pivotal role. This department is always focused on financial management and, partly because of this, an important source of information for validating certain opportunities or choices.
Where do you put the focus?
While tightly controlling inbound transport can bring cost savings and other benefits, it requires sustained effort. The focus should be on that inbound freight, which yields the most. For example, start with the top 20 suppliers in terms of inbound delivery volume, LTL deliveries of larger goods or regions with a significant concentration of suppliers. Also ask yourself what to do with infrequent deliveries or with low consolidation opportunities.
With all the pressure on delivering top customer service performance, you may be missing opportunities for optimising inbound transport. Establishing communication guidelines for the entire process from procurement to delivery and deploying technology for insight and dock appoint scheduling help to have crucial information and improve the inbound flow. By adapting your strategy to this very point, you can exploit this hidden treasure and contribute positively to business objectives.
