Vendor inbound freight costs are often viewed as an insignificant part of overall inventory costs. However, in many companies, inbound freight expenses can be as high as 4% or more of gross sales.
For example, a company with $20 million in annual sales may spend up to $800,000 on inbound freight charges. If this company reduced its inbound freight expense by 20%, its operational expenses would be reduced by $160,000.
Profits grow from increased sales or from decreased costs.
Since money saved goes right to your company’s bottom line, if you take the steps to reduce inbound freight costs, you’ll be a company hero.
Five Steps to be a Hero
The first step in lowering your vendor inbound freight expenses is to review all of your incoming shipments. Identify your vendors, the originations and destinations of your freight, the weight of each shipment, freight classifications, freight carriers, and truckload vs. LTL stats.
The second step is to calculate your total inbound freight costs and calculate the percentage of gross sales. This percentage is the “baseline.”
Step three is to create a preferred carrier program that offers exclusivity in specific service areas.
Approach your current carriers in step four to negotiate lower freight rates. Explain your preferred carrier program as your commitment to preferred carriers. Don’t be satisfied with the discount rates offered by carriers. Refer to your list of incoming shipments compiled in step one. What matters most is the net cost of shipping, not the discount points.
You’re now ready for step five, where additional money may be saved. Call Jay at 503.244.8787 for details.
P.S. If you don’t have the time or expertise to perform these steps, professional help is available by contacting us.