If you are in the business of providing goods, then you undoubtedly are in the business of managing your freight costs (both product in and product out). This posting will focus on managing inbound freight costs.
For many companies, freight expense can be a significant portion of total expenses incurred for the year. So, what can be done to help reduce these costs? Below are a few helpful tips to manage inbound freight costs.
1) Restrict your vendor’s selection of carriers to those that provide you with preferential rates or, talk to your vendors and compare their carriers’ shipping costs. Compare those shipping costs and then request all your vendors to use the carrier with the most advantageous cost. In many cases, you could negotiate lower costs for all parties, if the same carrier is utilized.
2) Specify the packaging materials used by your vendors. For example, require vendors to package goods in material that is easily recyclable or disposable. In many cases, vendors may be inconsistent on how they package your goods, thus causing increased receiving and processing time or causing you to incur additional trash or disposal costs. Additionally, if you have significant recyclable packaging material, you may have a third party recycler come pick up your recyclable goods and pay you for the recyclable material!
3) Require your vendors to palletize or arrange your material according to how it will best be stored in your warehouse. You do not want your receivers having to search around the warehouse for an available space, because the received goods are all different dimensions.
4) If you have multiple warehouses, require your vendor to ship to the nearest warehouse. What if the end customer is not near this location? Well, if you have personal trucks deliver/pick-up product from each warehouse, then they can load their truck with the material that was dropped off by the vendor and take to a central warehouse, or the final destination.
5) Know your local rates. Carriers generally provide lower fees for customers in their local areas. If you have multiple locations, have each location negotiate shipping costs with the local carrier.
6) Locate carriers with “empty miles”. “Empty miles” is code for trucks that have dropped off their product, and have an empty truck to drive back to their home destination. A carrier is willing to give a good rate to deliver product, versus have “empty miles”.
7) Use drop shipments – meaning have the carrier pick up the product from your vendor and deliver the product directly to the end customer. (This is assuming that no product improvement is necessary on your part, or if it is, it may be cheaper for you to drive to the customer’s location).
8) Use FOB Origin, meaning pay for the shipping once it leaves the vendor’s docks. Since you are paying for the shipping up-front, you can guarantee yourself that you are not paying a marked up freight price charged by the vendor.
If you have any questions on the above recommendations, or on other expense reducing options, please feel free to contact a Henry & Horne professional.