Advanced TMS Capabilities Open Up New Opportunities
In speaking with customers over the last few months, we have seen a significant increase in transportation teams taking more control of their inbound freight. Historically, most of the return on investment (ROI) for transportation management systems (TMS) was focused on outbound transportation by optimizing across less than truckload (LTL)/truckload (TL) and cutting freight costs while creating increased visibility and customer service. Now, with the advent of cloud-based transportation management systems that support a wider range of modes (e.g. parcel, fleet, air and ocean) and better supplier connectivity, the opportunity to expand the use of TMS to reduce the cost of inbound shipments is greater than ever.
How do Companies Use Transportation Management Systems to Open Up New Opportunities?
Whether a manufacturer, retailer or distributor is planning transportation with spreadsheets, or have automated outbound with a legacy TMS, it is a good time to take a step back and review the big picture. The following are examples that illustrate how incorporating inbound freight as part of the transportation management process can reduce overall freight costs, streamline operations, and increase customer satisfaction.
Example 1: Food Distributor Saves $6M in Freight Costs per Year
The first example is a food distributor that utilizes their own fleet. As a competitive advantage, they invested in a fleet and a proof-of-delivery solution to better serve their customers and control costs. Over the past few years, they started identifying vendor shipments that the fleet could pick up on the return leg. As they realized the costs savings from these backhaul shipments, they started to review the shipping costs they were paying suppliers for prepaid shipments and were shocked to learn they could save significant freight costs if they took on the freight management process. Their challenge was looking at inbound and outbound transportation across the fleet and common carrier holistically to maximize backhaul opportunities and complex pooling of shipments. They required a solution that planned and executed all shipments holistically. In the end, they converted 2/3 of the prepaid shipments to collect, and by handling an additional 7.5% with their fleet as backhauls, they saved over $6M in freight costs per year.
Example 2: Smaller Distributor Saves Over $600,000 per Year
Another example is from a smaller distributor that provides industrial equipment and supplies to customers domestically and internationally. Their shipment profile is approximately 85% parcel and 15% freight. They had automated their outbound parcel shipping process years ago. However, as their customer base increased, and the number of products they carried expanded, their supply base grew and their inbound transportation became more complex. Their suppliers are a mix of small specialty suppliers, as well as sophisticated global manufacturers. Additionally, they instituted a drop shipment program to better serve their customers. The challenge was the distributor did not have good control and visibility of their inbound or the drop shipment orders. As a result, they needed dedicated staff to call, and follow up with suppliers and carriers to ensure orders were flowing smoothly. If they missed a milestone, they had to expedite and pay additional freight, or worse, miss a customer deadline, and be subject to penalties. To eliminate these costs and associated risks, they implemented a TMS to better manage their inbound parcel and LTL shipments. By providing a portal to suppliers they increased contract compliance and achieved 100% visibility, including their supplier drop shipment orders. Furthermore, they could re-deploy their expediting staff on more value-added activities, which enabled them to save over $600,000 per year.
What Steps Are Required to Develop a Plan and Realize Cost Savings for Inbound Shipments?
To develop the plan and realize the potential cost savings and take control of your inbound freight, start with some basic steps
- Consolidate and review your inbound shipping volumes. This sounds easier than it is, as the information may be distributed across multiple systems/locations and for freight that is vendor managed actual freight costs are not readily available.
- Reach out to the broader supply chain and buying organizations. Often there is no single group that owns suppliers or logistics costs, it is split between purchasing, transportation, and operations, etc.
- Create your routing guide. Balancing costs and time to delivery are the basic trade-offs, but this also involves working with carriers to determine rates, based on volumes, providing alternate carriers either based on capability or special needs. This should also include specific labeling and EDI requirements that can streamline your logistics processes and operations workflows.
- Apply the 80/20 rule. Converting to “collect” is real work and 100% of your inbound shipments should not be the goal. Look for products, volumes, lanes, and suppliers’ transportation capabilities that could yield the greatest returns or just start with your top 20 suppliers (shipment volume).
There are significant cost savings to be had, but to get the most, inbound conversion needs to be a concerted effort. Here are three organizational points to consider:
- Structure: Is there someone on the team who ultimately owns this and wakes up every day driving inbound conversion? Because it is a cross-functional program, communication, defined roles and responsibilities and performance reporting are critical.
- Skills: Depending on your inbound transportation profile, you may need different transportation skills than currently exist in your organization. The fastest way to ramp up capabilities is to engage a transportation consultant who helps with the initial conversion project, but more importantly trains the team on the methods.
- IT: Do you have the right TMS? Can it handle your inbound conversion or backhaul requirements across all the transportation modes your company uses? This is more than making a mode selection and needs to include the mode-specific execution requirements such as parcel manifesting and fleet routing and a closed-loop model to handle capacity exceptions and automate the holistic transportation process.
While not a simple project, the cost savings for converting inbound freight can be significant. If your organization is looking for another place to meet its cost reduction objectives this is a great place to start. Adopting a cloud-based TMS approach provides the best choice for integrating suppliers, carriers and your organization to streamline and automate inbound freight conversions.