Industrial manufacturers are being hit hard by the current economic conditions. Overall demand for manufacturing is down, profit margins are shrinking and manufacturers are looking for any way to reduce operating costs.
Take steel manufacturers, for example, a wealth of low priced Chinese imports are driving the price of steel down, at a time when steel prices are already low and demand is shrinking rapidly. On top of this, the upstream and midstream portions of the oil supply chain have scaled back greatly with the low price of oil, further damaging the price and demand for steel.
Manufacturers play an integral role in the economy and are particularly susceptible to backlashes, as we’re seeing now. Many companies turn to transportation for cost savings and efficiency, however, they only ever focus on the outbound movement of goods. Inbound transportation management is neglected and companies pay the price for not taking control of this function.
Manufacturers stand to gain a lot from improving inbound freight movement. Here are the 3 main obstacles industrial manufacturers face in inbound transportation:
- It’s a Vendor Profit Center. Manufacturers pay very little attention to inbound freight. It’s often left up to the suppliers to arrange transportation. When this happens, vendors markup freight prices anywhere from 15 – 50%. The cost of transportation is hidden in the cost of products and raw materials, so it is almost impossible to tell the true costs of transport.
- Misalignment in Responsibilities. Outbound is the main focus for manufacturers; it is typically higher in volume and more directly affects customer service. This leaves purchasing professionals with the task of managing inbound freight. Unfortunately, they have no experience or time to manage inbound transportation, and costly inefficiencies often go unnoticed.
- No Market Leverage. Inbound freight is typically arriving from multiple vendors at various times throughout the week. Even after vendors markup prices and hide the cost of transportation, they’re not getting the best transportation prices because they are shipping a small amount compared to the whole of a manufacturer’s inbound freight. This gives them less leverage in the transportation market to negotiate lower prices.
When industrial manufacturers take control of inbound freight, make it a cost saving priority and consolidate their freight spend for market leverage, they can see significant cost savings. Outsourcing to a 3PL is also a useful strategy, as 3PLs have market leverage and experience in a variety of industries. Inbound freight transportation is an untapped mine of cost savings potential for manufacturers.
Learn more about transportation strategies for manufacturers: 4 Reasons Transportation is Crucial to Manufacturing Operations.