Are there any B2B strategies to reducing freight? Actually, there are and surprisingly, they’re pretty straightforward. However, they are not without their own risks. Whether your company is the vendor having to deal with high costs of delivering product to your customers, or the customer who is responsible for paying to receive those parts, dealing with high freight costs is never easy. However, there are solutions.
Reducing Your Company's Freight Bill
Freight is such a vital aspect of a company’s supply chain but also a huge cost driver in managing a company’s inventory. Your company’s per-unit cost of freight on materials and parts is a key aspect of your company’s overall inventory costs. Reducing these costs means to reduce your overall cost structure, and ultimately, to improve your company’s bottom line. So, given the rising prices at the fuel pumps, what can businesses do to alleviate this issue? Well, here are some simple approaches to reducing the impact of rising freight costs.
1. Pursue Consignment Inventory Agreements
A consignment inventory agreement is when a vendor ships a large sum of products or materials to customers. These customers are then able to use these parts over an extended period – typically 6 months to a year. During this time, customers are only invoiced for what they use in a given month. The remaining inventory is still owned by the vendor, while customers benefit from having access to immediate inventory.
The vendor reduces their per-unit freight costs on parts by shipping larger volumes, while customers avoid having to pay expedite fees to rush parts in when inventory is short. Consignment inventory agreements reduce costs for both vendors and customers, and are a viable solution to rising fuel prices.
2. Pursue Quarterly Bulk Shipments With Separate Invoice Dates
If consignment inventory agreements aren’t ideally suited to your business, then your company can still benefit from a similar approach, with a slight variation of course. For instance, shipping large bulk shipments to customers, and then agreeing upon set invoice dates, allows both parties to reduce the impact of high freight costs.
Of course your company will have to reconcile how that inventory is received, and that’s somewhat odd given the fact that customers will receive the inventory, but not be invoiced for it immediately. However, this approach helps to reduce the per-unit freight costs on incoming and outgoing shipments and is an approach a company, and its customers, can use quarter to quarter to reduce costs.
3. Measure the Burden of Additional Inventory Versus Freight Cost Reduction
Granted, holding inventory for extended periods can be costly. However, just as costly are those instances where inventory levels are so low your company must rush parts and materials in to meet customer orders. So, the focus must be on measuring the additional costs of holding inventory relative to the savings your company can accrue by purchasing more. These savings will be in lower per-unit freight costs and in lowering your company’s purchase prices on parts and materials. The rule to apply is that if the savings accrued in freight and purchase prices are higher than your inventory holding costs, then your company will come out ahead.
To learn more about measuring higher volumes against inventory costs, please refer to Inventory Carrying Costs Versus Higher Volume Purchases
Please note, the intention here is not to imply that reducing freight costs is easy, or that it doesn’t come with some risk. Nor is the intention to get your business to purchase more than it needs and increase its inventory costs. However, a number of companies immediately assume that the costs of holding additional inventory are far too high. As such, they never take the time to investigate the possible benefits of reducing their incoming and outgoing freight relative to holding more parts and materials.
When it comes to B2B strategies to reducing high freight costs, a large portion of success comes from taking the time to investigate ways to use bulk shipments to drive down the company’s per-unit cost of freight. Granted, there are some risks but companies can become proactive in freight management.
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