Inbound Transportation Management for improved logistics throughput

Inbound Transportation Management and Control: Low Hanging Fruit and How to Grab It

Executive Summary

In most organizations, the cost of transportation is equal to or greater than the combined costs of warehousing, order entry and customer service. In addition to its recognition as an enormous expense, freight transportation is the “corporate life bloodline to the marketplace” and has been a precursor to the shrinking or "flattening" of the world.

As the supply chain becomes more refined and integrated, its management has an even greater impact on the bottom line. Every dollar allocated to transportation and materials management must be ultra efficient. When it comes to managing your transportation program, the overriding theme must be control yet, many organizations have not applied the same efforts to inbound transportation management as they have to outbound management, making it a great opportunity for efficiency and cost savings.

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This white paper will identify and discuss the most important, perhaps simplest of steps necessary to improve Inbound Transportation Management as well as the opportunities that this improvement will yield.

Changing Business Attitudes

Yesterday’s business relationship recognized the individual importance of the buyer and seller. Individual advantage was the objective and this attitude was portrayed with customers and competitors alike. This business relationship was supported on many levels, but most supportive was the belief that this was a zero-sum game, there could be only one winner.

At many organizations, inbound shipments just appear on the dock. Companies have little control over when and how the products are shipped and see little opportunity to streamline. Many companies do not have their arms around their inbound spend; there are too many other areas that have a higher priority because of the lack of inbound control and visibility. But by improving control comes a wealth of new benefits that can help companies better decide where and how to route and consolidate inbound shipments for real savings.

After all, the ultimate goal of any inbound process is to receive materials as quickly as possible, without exception, so that they can either be moved to production for manufacture or assembly or moved into stock for sale, all at the lowest possible costs.

Begin Control: 10 Tips to Create a Routing Guide

The routing guide defines the rules of engagement between vendors and customers. As logistics processes have come under more scrutiny, the routing guide must be more detailed, providing a solution for every shipping situation. Yet, it also must be easy to read, simple to use and flexible. Your trading partners will be more apt to comply with a guide if nothing is left to their imagination and the carrier’s, cost savings and route parameters are clearly spelled out.

The rules of engagement are essentially a compilation of business rules that particularly address the operating conditions under which the trading partners perform. Developed from an understanding of the corporate philosophy and empowered by the Terms of Sale/Purchase and Freight Terms, the rules of engagement truly establish the way in which the trading partners conduct themselves. The rules of engagement also function as the platform through which compliance is defined and enforced and should serve to speed up the flow of information and materials.

Organize your current and future shipments by origin and destination.

Turn to your company’s vendor and customer files and identify origin and destination points in your entire distribution network. You can create something as simple as a state-to-state matrix or even as complex as a nine-digit zip-to-zip matrix.

Identify and chart the price / service capabilities and limitations of each transportation vendor, consistent with your desired level of service and cost.

Know your carrier’s strengths and weaknesses. Some carriers are good at transporting perishables; others may provide the best service, but only to certain locations. Some carriers may provide great inbound service but less than optimal outbound service. Others may excel with overnight service; others may have strength in 3 – 5 day service. There are as many capability variables as there are carriers. Communicate the possibilities and where to access the best value for every transportation dollar you spend.

Identify shipment size (volume and weight), frequency, modal requirements, special needs and time in transit.

Know the general make up of your shipments and the variables for time in transit. Identify weight groupings and service / modal requirements that apply to each group. Typical weight groups are 1 to 70 or 150lbs, 71 or 150lbs to 5000 lbs, 5001lbs to 12000 lbs and over 12000 lbs. Service / mode requirements can vary from overnight, two day, 3 day or 3- 5 day or Air, LTL, Truckload, Rail and Ocean. You may not want to provide a standard routing for overnight shipments weighing over 5000 lbs, nor would you provide a routing for ocean shipments weighing less than 70 lbs. Additionally, for shipments under 5000 lbs, you may want an opportunity to consolidate the shipment with others before it is shipped. Pay careful attention to your commodity mix and identify susceptibility to damage, contamination, heat and cold, etc. If some commodities cannot be shipped with others or require unique handling requirements due to their special nature, you need to provision for this.

Identify consolidation opportunities and weight breaks that support your price / performance needs.

All too often, shipments are arranged as they come in from sales or order processing. A basic rule in transportation is that volume enables volume discounts from carriers. If your shipments can be consolidated, you will receive better service and rates. Take a look at your carrier rates. In many cases you will find that one carrier offers better pricing for shipments of varying weights, one carrier may offer lower pricing for smaller shipments while another carrier may offer lower pricing for larger shipments.

Create a cross functional matrix that considers all possible variables in Tips 1-4 but keep it simple.

This is a basic “What If” matrix that leaves the decision-making responsibility with you, where it belongs. If your vendors are given the flexibility to choose carriers for you, they will almost always choose a carrier that they prefer, and not necessarily the one with which you negotiated the best rate or service. Most freight rate exceptions, most errors in documentation, and most causes for non-compliance can be associated with a lack of control. It is a difficult task to identify all possible combinations of circumstance and requirements, what’s more is that you want to keep your routing guide simple so that your vendors or other users can easily obtain the information that they are looking for.

Create a mechanism for exceptions handling that fit within your current business processes.

While you strive to provide as much necessary information to your vendors as possible, there are circumstances for which you cannot account. So you need a mechanism to provide routing assignments and rules for those unique shipments that will occur. Create a contact form or shipment authorization form that can be easily executed by your vendors so that they can provide you with all of the information that you will need in order to obtain a carrier that will satisfy your requirements.

Create rules

Your rules will identify the general and specific rules of engagement for conducting business with your company and should identify anything that is necessary to maintain or improve the efficiency of your receiving, put away, inventory and accounts payable and receivable processes. Identify requirements for marking, labeling, tagging, bar coding, Bill of Lading preparation, Garment on Hanger Shipments, direct to floor merchandise, pallet specifications, contacts, purchase order guidelines, hazmat and back order processing.

Distribute your guide.

Print only the number of copies you require so that each of the recipients can have access to the information appropriate for their need to know. Make sure each Routing Guide has a clearly stated security requirement clause and a clearly stated ramification for violations that compromise your company’s competitive privacy. Copies in the wrong hands are a potential security problem so you should know where every copy is at all times. When a vendor informs you that your Routing Guide has been misplaced, or even that parts are missing, be very concerned. The details in your Routing Guide can be highly competitive information that should be easily accessed by the ones who should have access, but not available to competitors or to those who do not have a need to know. All too often, a vendor misplaces a Routing Guide or has it open or available when a competitor to you is in the office. Security can be a very difficult concept to manage.

Create communications around your guide.

Mail each guide with a signed delivery confirmation and a return receipt or fax acknowledgement form. Follow this up with a telephone call to review aspects of the Routing Guide where there might be confusion. Share comments about your Routing Guide with users, particularly where they pertain to exceptions that can improve your supply chain. Keep notes of these exceptions for addendums and future updates. A signed confirmation is not just a security function. You need to confirm that every vendor has the most recent edition of your Routing Guide available for reference when it is time to make a transportation delivery decision. The excuse that your Routing Guide was not available should not be tolerated.

Plan to repeat this process in four months or consider simplifying the process by taking it on-line.

Things change and your Routing Guide is not a static process. You negotiate a lower rate. You find a better transportation alternative. A carrier goes on strike. A usual route or highway is closed or is prone to congestion or accidents. There are many reasons to continually revisit your Routing Guide. If you are working with old fashioned paper Routing Guides, you know that this is also an expensive on-going compilation and printing expense. If you have changed over to an electronic Routing Guide you can make changes as they occur so your Routing Guide is always current, always secure, and always ready for full compliance.

Improve Control: Improve Communications

Managing the costs of moving goods through the supply chain is a huge challenge for shippers and consignees. A single shipment involves inter-company and intra-company transactions and communications. In the life cycle of every transaction, data is required by a variety of people including vendors, customers, carriers, customer service, accounting, purchasing, product coordination, inventory management, warehouse management, and fulfillment.

A routing guide should be looked upon as a collaborative resource that improves trading partner relations, management decisions and reduces costs for all parties.

Companies procure transportation services with specific carrier partners that both meet their requirements for price & service and have a solid understanding of the nuances of their business needs. Additionally, these companies establish business processes and rules of engagement to facilitate the efficient flow of information and material into and throughout their organizations.

To convey information internally and externally, companies have historically implemented the use of paper routing guides. These guides are prepared, printed and distributed several times a year and often require vendors to acknowledge receipt of the new guide, fax an acknowledgement and immediately comply with the new directives. Printing and distributing the guide to vendors is a nightmare, if anything has to change, it would involve the same process all over again. Once a company mails its guides, there is no ready method to insure that vendors had the correct information, until they started to see vendors were using carriers that were not approved. Because the process of distributing a routing guide and monitoring compliance is so costly, companies are reluctant to update their routing guide too often. This precludes companies from taking advantage of better freight rates and immediately reacting to changing market conditions.

While basic practices see the routing guide as a static body of operating rules that speak to sales and purchase driven freight transportation matters such as carrier selection, routing, packaging and labeling, claims and credit, their primary form of communication was the “printed routing guide”. A weighty document that resembled War and Peace, it was published either semi-annually or annually. Because of its unwieldy size, lengthy preparation and printing time it was not unusual that at the time of its distribution, it was already outdated and required the collateral issuance of supplemental instructions. In an attempt to keep current, some companies issued supplements and revised pages, similar to tariff updates, throughout the life of the guide. As cumbersome and impractical as this process was for the issuers, it was at least as painful for the recipient. Neither buyer nor seller could timely deploy changes or even place the changes into a workable process. If getting the information out on time was impossible, it was equally impossible to take advantage of significant transportation opportunities that were literally available throughout the entire life of a shipment.

A routing guide should be looked upon as a collaborative resource that improves trading partner relations, management decisions and reduces costs for all parties as non-compliance with routing guides costs both vendors and their customers millions of dollars annually.

To adjust to the conditions that exist today, manufacturers, distributors, and retailers have implemented web based routing guides either. A web based routing guide should enable companies to ensure that trading partners use the carriers, rates, services, business rules, and communications that are required to effectively manage their supply chain. It should empower users with real-time information and utilities to immediately execute decisions based upon current information. It should make this information visible, thereby providing a solid basis for decision-making. It should eliminate voids between the decision and the implementation of the decision and improve communications and relations between trading partners. It should share information in a real time environment given the ongoing challenge to drive down transportation and handling costs.

People in general and management in particular, do not deliberately make mistakes. Non Compliance implies that a mistake has been made somewhere along the supply-chain. The most common causes of errors are inadequate and inaccurate data. A web based routing guide should be designed to address these issues. It should capitalize on what computers and people do best. Computers are excellent at handling data, but not so good at decision making. People are nowhere near as good at handling data but, excellent at making decisions if given the right information. A Web based routing guide gives decision makers the right data at the right time to allow them to make the right decisions. The right decisions made at the right time, increases service, improves performance, and eliminates non compliance.

When creating a web based routing guide, consider the following:

In short order and with little effort, you should be able to make changes to your carrier assignments and rules of engagement (routing guide) and instantly, automatically inform all vendors / customers / employees of the change.

It should provide constant contact with vendor and customer requirements and the ability to adapt these changing requirements by making and affecting instant changes while simultaneously notifying all users.

It should enable companies to maintain a manageable number of delivering carriers to maximize efficiencies of the freight receiving process.

It should enable users to simplify the distribution process and concurrently leverage all shipment volumes to improve compliance and drive down transportation costs.

It should empower users with real time information and the ability to make and execute decisions without delay.

It should provide greater flexibility in defining transportation instructions and take advantage of short term opportunities offered by its carriers.

It should be easier for shippers to comply with routing instructions by eliminating paperwork,

It should improve communications as it should serve as the mechanism to convey all of your logistics requirements to your vendors, customers and DC's.

Conclusion

The most valuable use of a routing guide is to allow you to gain control over inbound shipments by getting vendors to comply
with routing instructions while web based routing guides promise timely information, easy distribution, and widespread access. In either instance, these can serve as a simple, cost effective way to gain control, improve the management and drive down direct and indirect costs associated with inbound transportation.

To gain a better understanding of the rules of engagement and to learn how many of the world’s leading corporations have improved control and management of inbound transportaton, simply click on the following link: RoutingGuides.com.

About TransportGistics, Inc.

TransportGistics is a global, multi-product and services company that provides market leading, simple, incremental solutions for transportation management and logistics functions within the supply chain. Most recently, TransportGistics has been named a Top 100 Supply Chain Partner by the readers of "Global Logistics and Supply Chain Strategies" Magazine as well as a Top 100 Logistics IT provider by Inbound Logistics Magazine.

Continuation

Please consider this white paper as a continuum in this subject area, succeeding white papers will address common issues and address them with common solutions. We encourage our readers to direct any specific questions or comments to papers@transportgistics.com.

Disclaimer

The information presented herein represents the opinion of the author, but not necessarily the opinion of TransportGistics, Inc. This white paper is not presented as a legal position or as a recommendation.

“Idea Logistics", "Freight Lifecycle Management”, “Convergence” and “Today’s Freight Paradigm” are sales marks of TransportGistics, Inc.

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