Landed Cost & Vendor Compliance

Many shippers think that knowing freight cost as a percentage of goods is enough for decision making. While this may be a good jump off point, this measure does not take into account the details associated with a specific vendor or a specific product. This leaves them in the dark about how much money shipments are actually costing them, and whether or not those shipments are actually worth the cost of doing business.

In order to gain a better understanding of the breakdown of your company’s bottom line, it is crucial to know what the unit cost of inbound shipments is from vendor-to-vendor. In our recent webinar, Landed Cost & Vendor Compliance, we posed some prudent questions for companies to review with their operations teams, listed below.

• What is the true landed cost of freight in terms of inbound shipments?
• What is the cost of doing business with a vendor?
• Is the cost worth it?
• How can you improve efficiency and visibility when controlling costs?

In the following sections, we will break down why it is important to understand true cost and how BlueGrace helps businesses understand their own.

How businesses normally measure cost

Most firms measure performance on a macro or aggregate level by taking the total cost of purchased goods and diving that by transportation spend. “That’s great if you’re just trying to gather some overall business data,” Brian Blalock, Senior Manager of Sourcing at BlueGrace Logistics, says. But somewhat insufficient if “you’re trying to price your products for sale or accurately select vendors.”

“If we don’t understand how the vendor is impacting our cost, then we can’t truly understand what the landed cost of our product is going to be when we deliver it to our customer,” he continues.

On the front end, business intelligence can be formed from data gathered from a transportation management system (TMS), a logistics platform that enables users to manage and optimize the daily operations of their fleets. Many different companies make TMS systems, including BlueGrace. From a back-end perspective, an operations manager can identify industry trends and patterns and use their insight to decide which vendors are the most lucrative business partners and from there, improve inventory management processes.

Once the product is in your hands, you are paying inventory costs.

For example, if you have an agreement with a vendor to move product into one of your warehouses, and the associated cost per product upon delivery is 10 cents per unit, “we don’t want to be at the mercy of their inventory,” Blalock says, meaning that once the product is in your hands, you are paying inventory costs.

Blalock explains that the same reason you may get charge backs when you deliver your product early to the next member of the supply chain is the same reason you don’t want product arriving early from vendors, “because there is a cost for handling those goods,” he says. At the same time, receiving product late is not an option for obvious reasons. Striking the balance between minimizing the time product is in your storage facilities to avoid extra storage cost and ensuring that it gets to its final destination on time is the plight middle-members of the supply chain is aware of, but achieving that optimal scheduling is easier said than done. Having a firm grasp on your company’s data, or having “business intelligence,” enables you to optimize operations at a higher level than was previously an option, by coming as close to striking that balance as possible.

The key to turning information into profitability is defining goals and measuring performance.

The goal of business rules is to prevent vendors shipping product that will “cost you more money than what you originally allocated,” Blalock explains. “Once you’ve gained an understanding of that landed cost, then you can track your vendor performance and hold them to the established rules.”Knowing exactly what it costs to land the freight on the shelf is essential. So, how do you get there? “You can’t expect to improve in anything you don’t measure,” Blalock says. The key to turning information into profitability is defining goals and measuring performance.

Measuring performance

BlueGrace’s platform allows users to easily calculate the above-described metrics, for instance, cost of carrier per pound and true cost per product SKU. Users can navigate with a map of their network to see the origins of products and their destinations.

Then, you can click on a specific vendor, which allows you to see each shipment to “drill in to find out whether the inventory that belongs to your supplier is affecting the cost of transportation that you’ve agreed to a set cost with them on,” Blalock says. Referring to the earlier described inventory receiving optimization scenario, he reiterated, “We don’t need to fall victim to their inventory issues.”

Having a dashboard that encompasses all of your shipments and their data enables you to make smarter, faster decisions without the headache of calculating these figures on a case-by-case basis.

In the BlueGrace dashboard, users are able to navigate by tabs which include shipment, schedule, and tracking, to view route maps and shipment details in one place. There, users can access data like real-time transport status, port-to-port time, and carrier information. Having a dashboard that encompasses all of your shipments and their data enables you to make smarter, faster decisions without the headache of calculating these figures on a case-by-case basis.

Knowing the true cost means a better ability to set pricing, based on the “right day, right time, right carrier,” Blalock says. From there, the creation and implementation of business rules are what takes your business to the next level. The goal is to make business plans that drive profitability and provide better information to stakeholders.