A major consumer products company asked us to evaluate its inbound shipment program with the goal of finding better ways to manage these shipments. Questions were: How much are we actually paying for inbound freight? Can we save money by controlling these shipments? How can we increase the visibility of our inbound materials?
Business Logistics services conducted an initial evaluation finding that the client did not actively manage inbound shipments, and that vendors made all transportation arrangements without consulting the client beforehand. Freight terms of sale on these shipments varied from prepaid on orders with delivered pricing to prepay-and-add. A lesser number of shipments moved on a “freight collect” basis, and vendors routed these shipments as well.
Our first task was to identify the client’s vendors in terms of location, products and materials shipped, terms of sale, and spend ranking, grouping vendors into categories having common denominators such as freight terms and geographic location.
The next step involved determining the freight cost component associated with each vendor’s shipments. This was a two-stage process whereby we calculated the applicable freight transportation cost for a sampling of actual orders and compared those numbers to the difference between each vendor’s F.O.B. origin pricing and the delivered (or prepay-and-add) pricing to our client. By doing so, we were able to assess whether or not savings could be achieved by converting shipments from current freight terms to freight collect terms. We also identified areas where the client’s private truck fleet could economically pick up shipments from vendors on an F.O.B. origin basis, saving the expense of delivery to the client’s facilities.
We determined that it was to our client’s advantage to convert most inbound shipments to F.O.B. origin, freight collect. The resulting savings exceeded 28% of freight charges, producing substantial new profits for the company.