TRANSPORTATION: Eliminating concealed shipping costs
by Nicholas Isasi
September 26, 2012
As the economy slowly recovers from
the recent recession, smart gaming operators and suppliers to the casino
industry are continuing to seek ways to contain costs. Inbound transportation
is one area ripe with cost saving potential, but is, instead, often overlooked.
Inbound transportation costs
can comprise as much as 35 percent of some companies’ total logistics cost.
Controlling those costs can be significant because any savings in inbound
transportation costs can go directly to your bottom line.
Typically, the majority of
inbound transportation is prepaid or “delivered”—that is, the transportation is
arranged and paid for by the vendor. But when shipping choices—including
setting rates, choosing carriers and assigning classification codes—are left to
the vendor, you as the purchaser have little control over the inflow and
transportation charges related to your goods. This can lead to production
delays, stock shortages, late deliveries and higher costs.
How much higher? The markup
for vendor prepaid transportation can be as high as 40
percent!
How does this
happen?
The higher costs result from
the fact that most vendors use transportation as a profit center. They build
excess transportation and handling charges into their delivered, prepay-and-add
and bundled product prices. And when they negotiate reduced transportation
rates, they often don’t pass the savings on to their customers. If you make
your purchases on a freight collect basis, you may not be effectively
leveraging your company’s buying power to get the lowest transportation rates
possible.
If
casinos and other companies in the casino industry can learn to identify these
hidden expenses, eliminate them and enact other cost-saving measures, they can
save 10 to 25 percent on transportation costs. This can represent savings of
hundreds of thousands of dollars for large companies—even $1 million or
more.
STEPPING UP
Here are seven (relatively)
simple steps to significantly reducing inbound transportation
costs:
• Step #1: Conduct an audit of your current inbound transportation process.
Start by reviewing who your vendors are 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.
Next, 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 decisions and too-high rates on inbound shipments. In the
lanes with particularly poor service and high rates, start to implement changes
by switching to the carriers with which you’ve chosen to
negotiate.
Determine total annual costs
for inbound transportation, then calculate it as a percentage of gross sales.
This gives you a cost baseline so you can accurately track your cost savings.
The audit becomes the backbone of any solid vendor inbound transportation
program, and it is the first step in taking control of your inbound
transportation costs.
Then, take the information
you’ve gathered from the audit and undertake the following:
• 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; and these rates can vary by hundreds of dollars per
shipment. Additionally, items shipped internationally have a Harmonized Tariff
Code (HTC) that serves a similar function. By implementing appropriate
transportation classifications, some casinos and suppliers to the casino
industry will be able to save up to $100,000 or more per year.
•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 by transportation mode and in priority
order. When you distribute your guide to vendors’ shipping departments, your
single carrier choices should be entered into your vendors’ order-processing
systems. Use the guide to enforce vendor compliance. Clearly state the rewards
for strict adherence and the consequences, such as chargebacks, for those who
neglect your routing instructions.
• Step #4: Demand that transportation be clearly identified on each vendor’s invoice. Don’t
accept pre-pay and added or “free” transportation. Sometimes transportation is prepaid and added to your
invoice. But often transportation is buried in the price you pay for each item
shipped. This is called free freight. A warning: Working with suppliers
to break out transportation costs from the cost of goods isn’t easy; the
process requires frank conversations.
• Step #5:
Create visibility. In-transit transportation tracking will reduce
the time buyers spend confirming shipments with vendors. It also helps to
monitor individual carrier performance. So, look for carriers who can supply
such tracking methods. Also, utilize these reports to file for service failures
with small parcel carriers for not performing up to their guaranteed
services.
•Step #6: Adopt
a core carrier program that identifies strong carriers in given lanes. Having
20 carriers backing up to your receiving dock can create continual confusion in
your distribution center and become overwhelming to manage. In creating a core
carrier program, you identify pick-up coverage, service facility locations,
financial stability, systems and technology prowess and transit
times.
• Step #7: Negotiate
lower transportation rates. Leverage your volume to get better transportation
discounts on both your international and domestic transportation. In most
cases, the fewer providers you utilize the more leverage you have. Negotiate
with your carriers to eliminate or modify extra charges identified during Step
#1.
STRENGTH IN NUMBERS
One way to leverage your
transportation volume is to band together with other companies to pool
resources and buying power. Many companies are currently benefiting from
consortium transportation rates, and some of the most cost-effective are among
companies in a single industry which collaborate on the supply chain.
Proactively managing 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.
Nicholas Isasi
nicholasi@dmtrans.com
is
executive vice president and director of business development for Boyertown,
Pa.-based DM Transportation, a provider of 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. He can be reached at
nicholasi@dmtrans.com.
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