Managing your own inbound freight is a no-brainer…. you would think…

integration

When a company manages their own inbound freight, rather than outsourcing the work to a supplier, it can result in a 10-20% operational savings. Quetica, LLC has whitepaper, Inbound Management Strategy, that identifies the costs and savings around managing inbound in today’s environment.  The whitepaper provides a strong case on how system constraints are no longer barriers to bringing inbound management back in-house due to improvements in technology.  It includes detailed descriptions of the process to bring freight responsibility in-house, and gives the reader a clear vision of real cost savings for their organization.

So if the cost savings are there, and the technology is available, why don’t more companies take back the responsibility for inbound freight? Why do many organizations continue to allow the supplier to arrange for pickup and delivery of the product into their facilities? Why do they leave the payment of the freight bill in the hands of the suppliers, resulting in an add-on line item for freight, which ends up fixed to the price of the materials purchased?

Companies that allow external suppliers to manage their inbound freight believe they are working around an internal control constraints. The reality is that their held hostage by barriers unrelated to systems and process: they are held hostage by fear. And fear is the strongest motivator–or in this case, demotivator–there is.

As a consultant, I spend a lot of time helping companies bring the management of their inbound freight in-house.  I see up close the fear-based challenges that paralyze them from capitalizing on cost-savings, or without thoughtful stakeholder analysis and change management turn a no-brainer into outright civil war. Some examples of these obstacles include:

  • The bully supplier.  This is the supplier who has realized that a 20% markup on the goods to cover a 4% freight cost is a real revenue enhancer.  They threaten the customer to make sure they keep this revenue stream.

  • A “Let’s all just get along” culture. This is seen in the company that has an inner drive to hold all attitudes and beliefs in harmony and do nothing if change creates disharmony.  I’ll hear, “Some cost savings isn’t worth upsetting the culture of our organization.” In the next breath, they’ll say “ Cutting costs is the main objective for our organization.”  Can you say “Cognitiive dissonance”?

  • “We’re not staffed” Excuses I’ll hear in this vein are related to not having anyone who can   do the work: “There is no logistics department to give this to.” “There is no one who can negotiate with carriers and manage delivery activities.” What do these statements really mean? “We don’t know how to do this” or “We’re afraid to ask for resources.”

Each one of these scenarios represent issues that take a no-brainer cost reduction and make it almost impossible to achieve. So how can you overcome these issues? As a consultant, I have to  acknowledge the fear-based reasoning given by the client, and use that to clarify the acceptable state of the business. Is it acceptable for your suppliers to manage your business and determine your profit? Is it acceptable to give away 20% hard dollars in a market that is so tight, a 5% cost savings is comparable to a 30% increase in sales? And finally, is it acceptable to do this now when it will bring value to the bottom line, or do it later when management is making wholesale changes because of losses? I have to move past the logical mathematical argument to address the emotional barriers and identify ways to remove fear-based walls, to help the client see the situation from their own world view.  Not everybody looks at things the way I do. My job is to help organizations find a way through the emotional maze of change. The end result? Control of your inbound freight, cost savings, and an engaged team.

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Managing your own inbound freight is a no-brainer…. you would think…

integration

When a company manages their own inbound freight, rather than outsourcing the work to a supplier, it can result in a 10-20% operational savings. Quetica, LLC has whitepaper, Inbound Management Strategy, that identifies the costs and savings around managing inbound in today’s environment.  The whitepaper provides a strong case on how system constraints are no longer barriers to bringing inbound management back in-house due to improvements in technology.  It includes detailed descriptions of the process to bring freight responsibility in-house, and gives the reader a clear vision of real cost savings for their organization.

So if the cost savings are there, and the technology is available, why don’t more companies take back the responsibility for inbound freight? Why do many organizations continue to allow the supplier to arrange for pickup and delivery of the product into their facilities? Why do they leave the payment of the freight bill in the hands of the suppliers, resulting in an add-on line item for freight, which ends up fixed to the price of the materials purchased?

Companies that allow external suppliers to manage their inbound freight believe they are working around an internal control constraints. The reality is that their held hostage by barriers unrelated to systems and process: they are held hostage by fear. And fear is the strongest motivator–or in this case, demotivator–there is.

As a consultant, I spend a lot of time helping companies bring the management of their inbound freight in-house.  I see up close the fear-based challenges that paralyze them from capitalizing on cost-savings, or without thoughtful stakeholder analysis and change management turn a no-brainer into outright civil war. Some examples of these obstacles include:

  • The bully supplier.  This is the supplier who has realized that a 20% markup on the goods to cover a 4% freight cost is a real revenue enhancer.  They threaten the customer to make sure they keep this revenue stream.

  • A “Let’s all just get along” culture. This is seen in the company that has an inner drive to hold all attitudes and beliefs in harmony and do nothing if change creates disharmony.  I’ll hear, “Some cost savings isn’t worth upsetting the culture of our organization.” In the next breath, they’ll say “ Cutting costs is the main objective for our organization.”  Can you say “Cognitiive dissonance”?

  • “We’re not staffed” Excuses I’ll hear in this vein are related to not having anyone who can   do the work: “There is no logistics department to give this to.” “There is no one who can negotiate with carriers and manage delivery activities.” What do these statements really mean? “We don’t know how to do this” or “We’re afraid to ask for resources.”

Each one of these scenarios represent issues that take a no-brainer cost reduction and make it almost impossible to achieve. So how can you overcome these issues? As a consultant, I have to  acknowledge the fear-based reasoning given by the client, and use that to clarify the acceptable state of the business. Is it acceptable for your suppliers to manage your business and determine your profit? Is it acceptable to give away 20% hard dollars in a market that is so tight, a 5% cost savings is comparable to a 30% increase in sales? And finally, is it acceptable to do this now when it will bring value to the bottom line, or do it later when management is making wholesale changes because of losses? I have to move past the logical mathematical argument to address the emotional barriers and identify ways to remove fear-based walls, to help the client see the situation from their own world view.  Not everybody looks at things the way I do. My job is to help organizations find a way through the emotional maze of change. The end result? Control of your inbound freight, cost savings, and an engaged team.

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