PartnerShip®, an American Booksellers Association business service affinity partner, helps member booksellers save on shipments they send and receive. To learn more about all of ABA’s affinity partnerships, visit BookWeb.org’s Business Services page.
Reducing inbound shipping costs is one of the easiest — yet most overlooked — ways to reduce your overall transportation expenses. Like many other businesses, you may not currently have control over the shipments coming from vendors. It’s not uncommon for businesses to let the vendor shipping the product to you arrange the carrier, select the mode of transportation, and manage the actual pickup and delivery times. In some cases, the convenience of this sort of arrangement may work well for your situation. However, that convenience comes with a cost: you may find that you are paying significantly more for inbound shipping than if you had arranged for it on your own.
Inbound Shipping Challenges
Why is getting control of your inbound shipping so difficult? The typical challenges that businesses face in trying to get the upper hand on their inbound shipping costs are as follows:
- Lack of visibility and knowing what’s in transit: when your vendors control your inbound shipping, it’s very difficult to know how and when your orders will be shipped to you.
- Lack of control to specify the ideal carrier and mode of transportation: when you don’t have the control, your orders could be shipped using less-than-ideal or more expensive modes of transportation.
- Rising freight costs and limited resources to manage inbound shipping: with inbound shipping costs accounting for 40–60 percent of most businesses’ total sales, this is a significant cost that’s often difficult to tackle in this age of shrinking staff sizes and multiple responsibilities.
In this article, we’ll discuss four steps you can follow to better understand your true inbound shipping costs, and the cost savings opportunities you may be missing.
- Find a third-party logistics (3PL) or shipping partner that has inbound shipping management experience.
- Analyze your inbound shipping to determine actual shipping costs and opportunities for savings.
- Negotiate the best possible inbound shipping rates with your carriers.
- Create inbound routing instructions and send them to all of your key vendors.
Since you are the buyer of the goods, you can and should determine how those goods are shipped to you. When you control and route your own inbound shipments, you have an excellent opportunity to lower your costs.
Step 1: Find a 3PL Partner
For many businesses, there are distinct advantages to working with a third-party logistics (3PL) partner. If you’re looking to gain control of your inbound shipping, make sure you find a partner that has demonstrated experience and established tools for helping businesses manage their inbound.
Additionally, most 3PL freight partners are able to aggregate the freight volume of many small- to medium-sized businesses and help them negotiate better discount rates and terms. They can also provide additional value-added services, sometimes at no additional cost, that are designed to lower your overall logistics expenses.
Step 2: Analyze Your Inbound
In order to understand your true inbound shipping costs, you first need to complete a thorough shipping analysis by reviewing recent product invoices from your key suppliers. Most businesses may be surprised to find that vendors often add 2–10 percent to the value of their purchased merchandise.
When reviewing your product invoices, here are some terms you should keep in mind:
- Free Freight — there really is no such thing. Look closely as your vendor has probably buried their shipping costs into the purchase price of your merchandise.
- Prepaid and Add — this means your vendor is paying the freight for your shipment. It also means they are controlling the routing and adding this expense — often with additional “handling fees” — to your product invoice.
Prepaid Versus Collect
One of the main objectives in controlling your inbound is working with your vendors to change the shipping terms from “prepaid and add” to “inbound collect.” When you successfully change the terms to collect, you have essentially taken control of your inbound shipment since you are now paying the freight charges on the order.
In general, there are many benefits to having your inbound shipments routed collect, such as consistency and savings on your inbound shipping costs, as shown in this table.
It also reduces the number of carriers from different suppliers arriving at your receiving dock every day. When you control the routings, you control how and when carriers deliver to your door, making it easier to maximize your staff’s efforts.
Step 3: Negotiate Better Rates
As mentioned earlier, when you work with an established 3PL freight partner, you will generally be able to secure the best possible inbound shipping rates for your business. An experienced 3PL partner will be able to aggregate your needs with the needs of hundreds or thousands of businesses just like yours, in order to secure the most competitive deals for you.
Be careful of “fly-by-night” freight brokers or 3PLs that work with thousands of carriers. Oftentimes the quality of the service you get from, say, “Bob’s Trucking” will be comparable to the cheap prices you pay. So be sure you engage with a 3PL that only works with the most reputable carriers in the industry, such as UPS Freight, YRC Freight, FedEx, etc.
Step 4: Create Inbound Routing Instructions
With your 3PL partner relationship, your analysis of product invoices completed, and your competitive inbound shipping rates in hand, you’re now ready for the final step of creating inbound routing instructions and sending them to all of your key vendors. This is where your 3PL partner will either impress or disappoint.
A 3PL with inbound shipping experience will be able to help you create your inbound routing program with the following services:
- Identify and manage lists of key vendors
- Create clear inbound routing instructions for each vendor
- Draft and send routing instruction letters on your behalf to each of your key vendors
- Monitor and report on vendor compliance
- Consolidate your billing and report back with the savings you are receiving through the program
Inbound shipping costs are a major expense item for many businesses, particularly when you leave the control up to each of your vendors. If approached correctly, an inbound shipping management program can be an easy way to reduce your overall transportation expenses.
Inbound shipping programs are best managed through a third-party logistics provider. A good 3PL can help you analyze your product invoices for savings opportunities, develop routing instructions for your vendors, monitor compliance, and audit and consolidate invoicing to ensure you’re saving the most on your inbound shipping.
These tips are brought to you by PartnerShip®, the company that manages the ABA Shipping Program. PartnerShip has the resources and expertise needed to put together a winning strategy to gain control of your inbound shipping. For more information and to enroll in the free ABA shipping program, visit PartnerShip online or call (800) 599-2902.