Uncovering and Controlling Inbound Expenses

The first step to controlling your inbound logistics is to determine the amount that can be controlled.

There are two types of inbound freight that can be controlled. The first type is the freight that is itemized within a vendor’s invoice under “freight charges.” The second type is the freight that a vendor hides within the cost of the merchandise.

The first type is the easiest to control. Your accounts payable department probably codes these itemized charges under a “freight-in” code of some kind. This could and should be easily queried per vendor by your accounting department.

The second type is significantly more difficult to control. In order to find the vendors who are adding freight charges to the cost of merchandise, a company must monitor its inbound shipments. Most global carriers, including parcel, freight forwarders, truck, and LTL carriers, have the ability to provide an automatic, monitored process for anything en route to a company’s specific address or addresses. A manual process can also help determine the freight; however, a manual process would require that your receiving department keep track of everything delivered (including the carrier, weight, DIM weight, etc.)

Once the amount of controllable inbound freight has been determined by cross-referencing your results with your recent freight history, you should have enough leverage to obtain more attractive rates for future volume.

After rates for future shipments have been contracted, you can begin building and then distributing your corporate routing guide. The routing guide should first be distributed to those vendors with freight that is itemized within their invoice. This usually accounts for the majority of all inbound freight. Vendors should be able to simply switch carriers and start shipping using your company’s preferred inbound account number. Some hiccups can be expected during this process, but relatively-speaking, the transition should be an easy one. Send priority routing guides to those vendors that have the largest dollar amount in freight expense.

Vendors whose freight charges are built into cost of goods will be much more difficult to convert. In order to convince them to comply with a corporate routing guide, your purchasing department may need to explain that the goal is to eliminate the freight charges. Taking this stance should help prove to larger vendors that your company is in control of its expenses, which may make them more likely to convert. The participation of these vendors is important because they will add to the total freight volume and thereby help you to obtain even better discounts on your next carrier contract.