For furniture distributors and retailers trying to contain costs in this recovering economy, inbound transportation is an area ripe with cost saving potential. These costs can comprise as much as 35 percent of a company’s total logistics expenses.
The main challenge for retailers is that the majority of inbound transportation is prepaid or “delivered” – that is, the transportation is arranged and paid for by the vendor. When shipping choices, including setting rates, choosing carriers and assigning classification codes, are left to the vendor, you, the purchaser, has little control over the inflow and transportation charges related to your goods. This can lead to stock shortages and late deliveries. It can also result in higher costs due to the markup for vendor prepaid transportation. This markup can be as high as 40 percent, as vendors build excess transportation and handling charges into their prices and often don’t pass on negotiated reduced transportation rates to their customers.
For large furniture companies that eliminate these “hidden” expenses and enact other cost-saving measures, savings can total hundreds of thousands or more. Even smaller retailers can achieve savings of tens of thousands of dollars.
This article lists seven simple steps that can help you to significantly reduce inbound transportation costs.
Cost Cutting Step #1:
Conduct an audit of your inbound transportation process. Review your vendors and where they ship from. Then, determine the volume in each lane – the route between the pickup and delivery points – and, if shipping by truck, the merchandise class being shipped.
Discuss with your purchasing and receiving departments the visibility your company requires regarding shipments and transit times in each lane. Conducting a lane-by-lane benchmarking analysis will enable you to identify poor carrier service, inefficient routing and overly high rates on inbound shipments.
Determine total annual costs for inbound transportation and calculate it as a percentage of gross sales. Then, take the information you’ve gathered from the audit and undertake the following:
Cost Cutting Step #2:
Evaluate and implement appropriate transportation classifications for the items you ship. Domestically, every item has a National Motor Freight Classification (NMFC) number that equates to a classification and directly correlates to the rate charged. The higher the classification number, the higher the transportation rate. These rates can vary by hundreds of dollars per shipment. Items shipped internationally have a Harmonized Tariff Code (HTC) that serves a similar function. By implementing appropriate transportation classifications alone, some companies in the furniture industry can save up to $100,000 or more per year.
Cost Cutting Step #3:
Develop and enforce a vendor routing guide. Routing guides help you control costs and improve receiving efficiency. The guide itself should be simple and on one page, and it should be included with the purchase order as a separate item. It should include proper routing instructions telling your vendors exactly which carriers to use in priority order. Use the guide to enforce vendor compliance. Clearly state the rewards for strict adherence, and the consequences, such as chargebacks, when routing instructions aren’t followed.
Cost Cutting Step #4:
Demand that transportation be clearly identified on each vendor’s invoice. Don’t accept pre-pay and added or “free” transportation. Transportation is often buried in the price you pay. This is called free freight. Breaking out transportation costs from the cost of goods isn’t easy; the process requires frank conversations with suppliers.
Cost Cutting Step #5:
Create visibility. In-transit transportation tracking reduces the time buyers spend confirming shipments with vendors. It also helps to monitor individual carrier performance. So, look for carriers that can supply such tracking methods. Also, utilize these reports to file for service failures with small parcel carriers that do not perform up to their guaranteed services.
Cost Cutting Step #6:
Adopt a core carrier program that identifies strong carriers in given lanes. Having several carriers backing up to your receiving dock can create continual confusion and become overwhelming to manage. A core carrier program helps you identify carriers’ pick-up coverage, service facility locations, financial stability, systems and technology prowess and transit times.
Cost Cutting Step #7:
Negotiate lower transportation rates. Leverage your volume to get better transportation discounts. In most cases, the fewer providers you utilize, the more leverage you will have. Negotiate with your carriers to eliminate or modify extra charges you identified during Step #1.
One way to leverage your transportation volume is to combine the buying power of several companies. Many retailers benefit from consortium transportation rates, and some of the most cost-effective consortia are among companies in a single industry – such as furniture distribution and retailing. Single-industry-specific consortia can be more effective than other multi-company arrangements because the pricing is geared toward a single industry’s commodities (Step #2); routing guides are easier to enforce because more companies are shipping from common vendors (Step #3); and core carriers are more productive and competitively priced when more freight pickups occur at common vendors (Step #6). Additionally, carriers’ pricing tends to be more aggressive when bidding for multiple accounts – not just one.
One way to engage in consortium rates is through an independent third party that can gather the data, negotiate pricing with a limited number of carriers and supply the software to track shipments. A third-party alliance can increase your buying power without the need to share information with competitors.
Proactively managing of your inbound transportation can help you reduce costs and improve your supply chain. The keys are to take control of carrier selection and classification decisions; track all inbound transportation dollars expended; and reduce the number of delivering carriers. The resulting savings will make the effort well worthwhile.
About the author:
Nicholas Isasi is Executive Vice President for DM Transportation based in Boyertown, Pa. The company provides vendor inbound, supply-chain management, drop shipment and small package services to the direct marketing industry. Isasi has more than 20 years’ experience in carrier development, distribution, corporate level traffic and logistics. Questions on transportation issues can be directed to Mr. Isasi at by contacting email@example.com or calling him direct at (407)288-7110 The DM Transportation website is located at www.dmtrans.com
Furniture World is the oldest, continuously published trade publication in the United States. It is published for the benefit of furniture retail executives. Print circulation of 20,000 is directed primarily to furniture retailers in the US and Canada. In 1970, the magazine established and endowed the Bernice Bienenstock Furniture Library (www.furniturelibrary.com) in High Point, NC, now a public foundation containing more than 5,000 books on furniture and design dating from 1620. For more information contact firstname.lastname@example.org.