Reducing Inbound Freight Costs and Improving Accounting
Q: How can our company account for inbound freight costs on our month-end accrual reports? We prefer to route our own freight and use our own third-party carriers for these collect orders.
A: Unfortunately, you are experiencing an industry-wide issue. Pre-rating based on purchase order information can pose a real risk. Your purchase order may include the vendor shipping origin as well as the products.
However, you do not actually control your vendor-supplied shipments. As such, it’s common to discover your vendor has shipped from one of its sourcing locations that is not in your system. In addition, the vendor may split your order and ship from multiple locations on multiple dates. Further complicating the issue is determining the actual ship weight and commodities of the product on the shipment.
Your vendor has different priorities in carrier selection for your inbound collect shipments. The cost is irrelevant to them. They would rather tender the load(s) to their preferred carriers, as they often pick up loads daily, decreasing loading dock utilization and time spent booking loads.
Given the above, attempts to pre-rate inbound shipments based upon purchase order information lead to too many required corrections/adjustments and an improper month-end accrual.
One solution is to have your internal TMS carrier rate engine pre-rate advanced shipment notifications provided by your vendors.
Q: Very few of our vendors are sending us their shipments with the data necessary to pre-rate them. How can we optimally route, track, and accrue the shipment information?
A: Optimally the shipper will provide shipment details and request a routing, but this almost never occurs. Another solution is to use a web-based Vendor Routing Portal. Suppliers log in to a portal rebranded with your company’s logo to process shipments.
The suppliers’ purchase orders are visible for their selection to ship partial or full orders. Shipment details are entered for routing by the vendor. Your rates and preferences are then used to determine optimal carrier selection based upon your criteria (price, transit time, carrier preference). Loads are then tendered to the selected carrier, assuring carrier selection compliance. This lowers your inbound freight spend and automates the carrier selection process.
Once the shipment leaves your vendor, it is tracked and added to your accrual file. This provides your accounting department with an immediate and accurate cost of the freight and true month-end accruals.
Q: How good is vendor compliance?
A: As a supplier, you already work with similar tools to route freight to your clients. This is not uncommon and your company will be penalized for noncompliance. Similarly, when a supplier is noncompliant, a few charge-backs of the freight differential will quickly change their priorities.
Contact us at AR Traffic Consultants to see how we can help you lower your inbound freight costs and improve your accounting.