Model inbound transportation for supply chain savings

By James A. Cooke

One way electrical distributors can better manage their supply chains is to take control over inbound shipments from their suppliers. That’s because suppliers charge, in some form, for delivering goods from their plant or warehouse to the distributor. In some cases the suppliers tack on a freight charge for delivery; in other situations, it’s rolled into the product price.

No matter how the freight price gets factored in, a distributor can sometimes do the inbound transportation for less money. If the distributor has its own private trucking fleet, there’s the possibility that a truck can pick up the supplier’s product on a backhaul from a customer delivery. If the distributor deals with a number of for-hire carriers, it might have the leverage to obtain better transportation pricing than the supplier.

Before a distributor approaches a supplier about taking over the inbound transportation, it’s wise to model the potential savings. Fortunately, there’s software available to do just this. If the distributor is already using transportation management software (TMS) to plan and route its shipments, that application can likely be used to simulate control of inbound shipments. If the distributor does not use a TMS, these applications can be rented online for this exercise.

The TMS can be used to compare freight rates between the distributor and supplier on specific shipping routes. If the distributor’s rates from its carrier base would be lower than what’s being paid now for inbound movements, that’s good reason to consider a change.

In addition, TMS modeling can also determine whether a buyer can tap into its carrier network to coordinate pickups with deliveries either with an existing for-hire trucker or with its own private fleet. Since some carriers will give discounts for backhauls, there’s an opportunity here for some freight dollars savings. Although TMS traditionally dealt with domestic trucking, recent software versions can handle international air and ocean transportation. That means a distributor bringing in products from overseas suppliers can conduct this exercise on international inbound shipments.

This analysis is more clear-cut if the supplier is providing a “freight allowance” on the bill and not rolling the transportation cost into the price of the goods. (A freight allowance is the amount that a manufacturer will deduct from the bill should the buyer pick up the freight.) In cases with no freight allowances, then the TMS must examine the entire network and determine whether headhauls and backhaul movements can be paired. To do that, the TMS generally needs data from the purchase order system in order to determine whether such inbound and outbound delivery coordination is feasible.

Although a TMS provides a value for quantifying control of inbound transportation, keep in mind that the contract terms must likely be renegotiated. Many suppliers resist handing over inbound control because they too want huge shipment volumes to extract favorable freight rates from carriers. Even if the supplier won’t relinquish inbound control, the exercise of inbound transportation modeling can give the distributor more knowledge about delivery costs in bargaining with suppliers over prices.

James Cooke is the editor of CSCMP’s Supply Chain Quarterly magazine, the premiere journal of global thought leadership for supply chain professionals. He has been writing and reporting on the best practices in supply chains for more than 30 years.

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