Seven Ways to Reduce One Widely Overlooked Cost

Spend Matters welcomes a guest post from Mark Schaffner, VP of Marketing at Verian.

Every holiday season, I think about years ago when I sent personalized coffee mugs to all our customers -- convinced it was a great way to keep our brand top-of-mind (and top-of-morning). A week later, I got a call from a large customer who I also considered a close friend. I eagerly picked up the phone anticipating a warm thank you. He didn't even say hello, he just asked, "Why did you spend $4 to send me a $2 coffee mug?" I didn't have a good answer.

His astute observation typifies the way most organizations gloss over freight. We spent more time picking out the color and style of the mug than addressing the shipping costs, which were -- as accurately detailed by our customer -- verifiably twice the cost of the item!

But freight spend is a much larger and systemic problem than just holiday shipping. Organizations waste millions of dollars every year on freight spend in a number of different ways: duplicated, excessive or unnecessary shipping charges; vendors not adhering to contracts; and the lack of visibility into what you're really spending to ship goods.

Although freight is an enterprise-wide spending category that is notoriously difficult to manage and control, there are a handful of best practices that can dramatically reduce what your company spends on shipping. Here are a few that we've learned from our customers:

  1. Review freight discrepancies -- whether it's an honest mistake or something more sinister, it's not uncommon for suppliers to "double-dip" freight charges: once in the pre-pay amount and then again on the invoice. Organizations should always compare the PO and invoice freight to make sure they match. Using our system to detect discrepancies, one of our new customers quickly identified a supplier that was double dipping on every order.
  2. Track and audit freight spend -- our customers use the reporting tool of our purchase-to-pay system to track and audit freight spend year-over-year, allowing them to compare costs among vendors. One of our customers found that one vendor was three times the amount of all the rest. A quick look into their invoices showed that they were shipping all orders next day.
  3. Stock items that make sense -- do an economic order quantity (EOQ) analysis on your supplies and consider building up inventory on your frequently-ordered items with low holding costs. Buying in bulk will get you a lower item cost and significantly reduce freight on those items. One of our oil and gas clients ordered enough drilling pipe for a year from China: the one massive order saved hundreds of thousands in freight costs for the year.
  4. Establish release schedules -- the best way to consolidate employee orders is to have your suppliers do it for you: have them release all orders on just one day of the week to get the biggest bang for your freight dollars. One of our customers saved over $250,000 in less than a year just by sticking to this schedule.
  5. Invoice imaging -- every invoice you send parcel is costing you more than postage: hours of non-value added time opening and sorting paper invoices adds up quickly -- especially if you're receiving thousands a month.
  6. No ship/no pay policy -- if you've negotiated shipping contracts, your suppliers should be using them. In fact, several of our customers have stopped playing nice and laid down the law: use our shipping contracts or the freight is on your dime. It's a black and white policy that can amount to significant savings.
  7. Separate freight charges -- make sure you're getting full visibility into freight costs, have your suppliers separate out the shipping on a separate line item. Freight is already difficult to identify, suppliers don't need to make it even harder.

Hopefully, you can incorporate some or even all of these practices in your organization. Meanwhile, I need to look for my pumpkin pie recipe -- the holidays are nearly upon us!

- Mark Schaffner, VP of Marketing, Verian (mschaffner (at) verian (dot) com)

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