Inbound Transportation Management and Control: Why It's Important and How to Grab It
Do inbound shipments just seem to appear on your dock? Here's how to seize control.
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In most organizations, transportation costs equal or exceed the combined costs of warehousing, order entry, and customer service. In addition to representing an enormous expense, freight transportation is the corporate bloodline to the marketplace, and has been a precursor to the shrinking or "flattening" of the world.
As the supply chain becomes more refined and integrated, logistics management has an even greater impact on the bottom line. Every dollar allocated to transportation and materials management must be ultra-efficient. When it comes to managing your transportation program, the overriding theme must be control. Yet many organizations have not applied the same efforts to inbound transportation management as they have to outbound management, making it a great opportunity for efficiency and cost savings.
Changing Business Attitudes
Yesterday's business relationships recognized the individual importance of the buyer and seller. Individual advantage was the objective, and this attitude was portrayed with customers and competitors alike. This business relationship was supported on many levels, but most supportive was the belief that this was a zero-sum game, and there could be only one winner.
At many organizations, inbound shipments just appear on the dock. Companies have little control over when and how the products are shipped, and see little opportunity to streamline. Many companies do not have their arms around their inbound spend; too many other areas have a higher priority because of the lack of inbound control and visibility.
Improving control brings a wealth of benefits that can help companies better decide where and how to route and consolidate inbound shipments for real savings.
After all, the ultimate goal of any inbound process is receiving materials as quickly as possible, without exception, so they can either be moved to production for manufacture or assembly, or into stock for sale—all at the lowest possible cost.
The first step is to develop a routing guide that defines the rules of engagement between vendors and customers. This document must be extremely detailed, providing a solution for every shipping situation. Yet, it also must be easy to read, simple to use, and flexible. Your trading partners will be more apt to comply with a guide if nothing is left to their imagination, and the carriers, cost savings, and route parameters are clearly spelled out.
The rules of engagement are essentially a compilation of business rules that address the operating conditions under which the trading partners perform. Developed from an understanding of the corporate philosophy and empowered by the terms of sale/purchase and freight terms, the rules of engagement establish the way in which trading partners conduct themselves. The rules of engagement also function as the platform through which compliance is defined and enforced, and should serve to speed up the flow of information and materials.
The following 10 tips will help you create an effective inbound routing guide:
1. Organize your current and future shipments by origin and destination.
Turn to your company's vendor and customer files to identify origin and destination points in your entire distribution network. You can create something as simple as a state-to-state matrix, or as complex as a nine-digit ZIP-to-ZIP matrix.
2. Identify and chart the price/service capabilities and limitations of each transportation vendor, consistent with your desired level of service and cost.
Know your carriers' strengths and weaknesses. Some carriers are good at transporting perishables; others may provide the best service, but only to certain locations. Other carriers may provide great inbound service, but less-than-optimal outbound service. A few may excel at overnight service; others may have strength in day service. There are as many capability variables as there are carriers. Communicate the possibilities, and specify where to access the best value for every transportation dollar you spend.
3. Identify shipment volume and weight, frequency, modal requirements, special needs, and time in transit.
Know the general make-up of your shipments and the variables for time in transit. Identify weight grouping and service/modal requirements that apply to each group.
Typical weight groups are:
- one to 70 or 150 pounds
- 151 pounds to 5,000 pounds
- 5,001 pounds to 12,000 pounds
- More than 12,000 pounds
Service/mode requirements may include overnight; two-day, three-day, or three- to five-day; air; less-than-truckload (LTL); truckload; rail; and ocean.
You may not want to provide a standard routing for overnight shipments weighing more than 5,000 pounds, nor would you provide a routing for ocean shipments weighing less than 70 pounds. Additionally, for shipments weighing less than 5,000 pounds, you may want an opportunity to consolidate the shipment with others before it is shipped.
Pay careful attention to your commodity mix and identify susceptibility to damage, contamination, and extreme temperatures. If some commodities cannot be shipped with others, or require unique handling due to their special nature, you need to make provisions for them.
4. Identify consolidation opportunities and weight breaks that support your price and performance needs.
All too often, shipments are arranged as they come in from sales or order processing. A basic rule in transportation is that volume enables volume discounts from carriers. If your shipments can be consolidated, you will receive better service and rates.
Review your carrier rates. You may find one carrier offers better pricing for shipments of varying weights; one provides lower pricing for smaller shipments; and another offers lower pricing for larger shipments.
5. Create a simple cross-functional matrix that considers all variables discussed above.
This is a basic "what-if" matrix that leaves the decision-making responsibility with you, where it belongs. If vendors are given the flexibility to choose carriers for you, they will almost always choose a carrier they prefer—not necessarily the one with which you negotiated the best rate or service. Most freight rate exceptions, documentation errors, and causes for non-compliance can be associated with a lack of control. It is difficult to identify all possible combinations of circumstance and requirements. Keep your routing guide simple so your vendors or other users can easily obtain the information they need.
6. Create a mechanism for exceptions handling that fits within your current business processes.
While you strive to provide as much necessary information to your vendors as possible, there are circumstances for which you cannot account. So you need a mechanism to provide routing assignments and rules for unique shipments.
Create a contact form or shipment authorization form your vendors can easily execute so they can provide you with all the information you need to obtain a carrier that will satisfy your requirements.
7. Create rules.
Identify the general and specific rules of engagement for conducting business with your company. These rules should identify anything that is necessary to maintain or improve the efficiency of your receiving, inventory, and accounts payable and receivable processes. Identify requirements for marking, labeling, tagging, bar-coding, bill of lading preparation, garment-on-hanger shipments, direct-to-floor merchandise, pallet specifications, contacts, purchase order guidelines, hazmat, and back-order processing.
8. Distribute your guide.
Print only the number of copies you require so that each recipient can have access to the appropriate information. Make sure each routing guide has a clearly stated security requirement clause, and ramification for violations that compromise your company's competitive privacy.
Copies of your routing guide falling into the wrong hands create a potential security problem, so you should know where every copy is at all times. When a vendor informs you that your routing guide has been misplaced, or even that parts or pages are missing, be very concerned.
The details in your routing guide can be highly competitive information that should be easily accessed by all relevant parties, but unavailable to competitors and others who do not have a need to know. All too often, a vendor misplaces a routing guide, or has it open or available when one of your competitors is in the office. Security is crucial, but can be a difficult concept to manage.
9. Create communications procedures for your guide.
Mail each guide with a signed delivery confirmation and a return receipt or fax acknowledgement form. Follow up with a phone call to review aspects of the routing guide that might be confusing.
Share comments about your routing guide with users, particularly where they pertain to exceptions that can impact your supply chain. Keep notes of these exceptions for addendums and future updates.
A signed confirmation is not just a security function. You need to confirm that every vendor is referring to the most recent edition of your routing guide when it is time to make a transportation delivery decision. You should not tolerate the excuse that your routing guide was not available.
10. Plan to repeat this process in four months, or consider simplifying the process by taking it online.
Circumstances change, and your routing guide is not a static set of rules. There are many reasons to continually revisit your routing guide: You negotiate a lower rate. You find a better transportation alternative. A carrier goes on strike. A usual route or highway is closed, or is prone to congestion or accidents.
If you are working with old-fashioned paper routing guides, you know that this is also an ongoing compilation and printing expense. If you have changed over to an electronic routing guide, you can make changes as they occur, so your guide is always current, secure, and ready for full compliance.
Improve Control By Improving Communications
Managing the costs of moving goods through the supply chain is a huge challenge for shippers and consignees. A single shipment involves inter-company and intra-company transactions and communications. In the lifecycle of every transaction, a variety of people—including vendors, customers, carriers, customer service, accounting, purchasing, product coordination, inventory management, warehouse management, and fulfillment—require data.
Companies procure transportation services with specific carrier partners that both meet their requirements for price and service, and understand the nuances of their business needs. Additionally, these companies establish business processes and rules of engagement to facilitate efficient information and material flow into and throughout their organizations. To convey information internally and externally, companies have historically implemented the use of paper routing guides.
Shippers prepare, print, and distribute the guides several times a year, and often require vendors to acknowledge receipt of the new guide, and immediately comply with the new directives. Once you mail the guides, there is no ready method to ensure vendors have the correct information—until you see vendors using carriers that were not approved.
Because the process of distributing a routing guide and monitoring compliance is so costly, companies are reluctant to update their routing guide too often. This precludes companies from taking advantage of better freight rates and immediately reacting to changing market conditions.
The routing guide functions as a set of operating rules that speak to sales and purchase-driven freight transportation matters—such as carrier selection, routing, packaging and labeling, claims, and credit. Most shippers publish these weighty documents either semi-annually or annually.
A Collaborative Resource
Because of their unwieldy size, and lengthy preparation and printing time, many routing guides are already outdated by the time they are distributed. In an attempt to stay current, some shippers issue supplements and revised pages throughout the life of the guide.
As cumbersome and impractical as this process is for the issuers, it is at least as painful for the recipient. Neither buyer nor seller can deploy changes quickly, or even place the changes into a workable process. If getting the information out on time is impossible, it is equally impossible to take advantage of significant transportation opportunities that are available throughout the shipment's entire life.
A routing guide should be looked upon as a collaborative resource that improves trading partner relations and management decisions, and reduces costs for all parties, as non-compliance with routing guides costs both vendors and their customers millions of dollars annually.
To adjust to today's conditions, many manufacturers, distributors, and retailers have implemented Web-based routing guides (see “Creating a Web-based Routing Guide,” below). A Web-based routing guide ensures companies that trading partners use the carriers, rates, services, business rules, and communications that are required to effectively manage their supply chain.
Routing guides should accomplish the following goals:
- Empower users with real-time information and utilities to immediately execute decisions based on current information.
- Make this information visible, thereby providing a solid basis for decision-making.
- Eliminate voids between the decision and the implementation of the decision.
- Improve communications and relations between trading partners.
- Share information in a real-time environment, given the ongoing challenge to drive down transportation and handling costs.
People in general, and management in particular, do not deliberately make mistakes. Non-compliance implies that a mistake has been made somewhere along the supply chain. The most common causes of errors are inadequate and inaccurate data.
A Web-based routing guide should be designed to address these issues. It should capitalize on what computers and people do best. Computers are excellent at handling data, but not so good at decision-making.
People are nowhere near as good at handling data, but excellent at making decisions if given the right information. A Web-based routing guide gives decision-makers the right data at the right time to allow them to make the right decisions. The right decisions made at the right time increases service, improves performance, and eliminates non-compliance.
The most valuable use of a routing guide is allowing you to gain control over inbound shipments by getting vendors to comply with routing instructions. Web-based routing guides promise timely information, easy distribution, and widespread access.
These documents can serve as a simple, cost-effective way to gain control, improve transportation management, and drive down direct and indirect costs associated with inbound transportation.
Adapted with permission from Inbound Transportation Management and Control: Low Hanging Fruit and How to Grab It, a whitepaper published by TransportGistics, a logistics and transportation management solutions provider based in Bohemia, N.Y.