Global Logistics and Supply Chain Strategies - April 2008 - (Page 61)

OPINION paid by the manufacturer, costing the retailer more than $200,000 in incremental charges over a three-month time frame. A national chain of discount stores found itself with an even more costly problem. The company created an online routing guide vendors used to enter details about each shipment and determine how each should be handled. Unfortunately, the way some vendors chose to enter shipment information caused volumes to be calculated based on how each package would be loaded, rather than on its precise size and weight. As a result, 18-wheelers were being sent to pick up 10-pound packages. It was a $3m-a-year mistake that took significant time and effort to unravel. Sending prepaid shipments via freight collect If a vendor is supplying merchandise to multiple departments within your firm, they may have a number of purchase orders governing that activity. Some may require shipments to be prepaid, while other orders may specify that merchandise should be sent “freight collect.” That makes it easy for mistakes to happen. One national retailer had a policy of providing vendors with an account number to be used to ship all small packages collect. Certain departments, though, wrote orders to the same vendors requesting prepaid shipping. With the account number in hand, many vendors sent ALL packages freight collect. An audit of the retailer’s operations uncovered $1.5m in excess charges. The same problem can crop up with back orders. One large U.S. firm discovered $15m in excess charges in a single year from vendors who mistakenly sent backordered merchandise freight collect. There are several best practices your company can adopt to help prevent such costly mistakes and recover lost revenues. Automate your records The single most important step you can take is to automate your records. Unless you do so, it can be virtually impossible to dig through mountains of paper to find problems. So automate your routing guide and purchase orders and require that all freight bills and vendor invoices be submitted electronically if possible. With electronic data in hand, software can be developed based on your unique business rules to determine whether ven- Six best practices for vendor routing guides Here are six important best practices to follow when developing a routing guide to govern shipments from vendors: 1. Outline the process a vendor should use to select the most appropriate carrier and shipment method. 2. Make it crystal clear when shipments should be combined and how. 3. Provide guidance on how you expect back orders or incomplete shipments to be managed. 4. Outline the authorization process to be used before shipping merchandise by air. 5. Spell out the specific repercussions involved if a vendor fails to follow your routing instructions or ships a prepaid item collect. 6. If possible, automate your guide and make it accessible to vendors online. dors have complied with your instructions. You can compare what you specified, what the vendor did and what you paid for – allowing you to identify the gaps. You also will have an electronic “paper trail” that can help you recover what you’ve overpaid and restore revenues to your bottom line. Automate your routing guide to make it Web-accessible While a paper version of your routing guide is acceptable, best-in-class companies are creating Web-accessible programs vendors can use to enter information on each shipment and receive specific routing instructions. By taking control of the process, you’ll remove the guesswork and can reduce or eliminate many of the most common and costly errors. Just proceed with care and caution in developing your software. Making errors at the programming stage can result in systemic issues that are hard to uncover. Routinely review and update your routing guide It is critical that you routinely review and update your routing guide—especially in light of soaring fuel costs. If, for example, you have a blanket rule that instructs a vendor to ship orders of less than 20 packages or 200 pounds by small package carrier, you may discover upon analysis that the most cost-effective breakpoint has changed. So whether you do it yourself or hire a service to help you, take a thorough look at your routing guide on a regular basis to see if updates should be made. Keep in mind that knowledge is power. So whether you decide to audit your own operations or to hire an outside firm to do so, take a thorough look at whether vendors are complying with your shipping instructions. If an audit uncovers costly errors, you’ll have the information you need to recover lost revenues and to make a potentially significant contribution to the profitability of your company’s operations. Know, too, that most vendors expect freight claims and are responsive when presented with evidence that a mistake has been made. If you handle the situation with a measure of care, you can maintain a positive relationship with your vendors while returning revenues to your bottom line. To access this article online, visit The Digital Edition at www.SupplyChainBrain.com. Industry estimates show inaccurate freight bills add an average of .02 percent to a typical company’s annual freight costs. But vendors who fail to comply with established routing guidelines can have twice the financial impact—an average of .04 percent. www.SupplyChainBrain.com GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES 61 www.SupplyChainBrain.com www.SupplyChainBrain.com

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Global Logistics and Supply Chain Strategies - April 2008 Contents Editorial GL & SCS Exclusive Fast Forward Up Front Cover Story: Continuing to Add Ever More to Their Offerings, 3PLs Are - At Your Service Over the Long Haul Opinion: Freight Audit Bill Can't Show All Mistakes that Hurt the Bottom Line Opinion: The ‘Good-Freight’ and ‘Bad-Freight’ Trucking Customers Industry Voices

Global Logistics and Supply Chain Strategies - April 2008

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