Several years ago, many retailers launched initiatives to take greater control of their inbound transportation processes. We published a report back in May 2003 titled “Taking Control of Inbound Transportation“  (available to ARC clients only) that outlined a six-step process for converting from pre-paid to collect transportation based on best practices observed from companies that had already embarked on that journey.

Like retailers before them, manufacturers are now looking to implement the so-called “Ready-to-Ship” process. A key difference between the traditional inbound process and the Ready-to-Ship process is that the Buyer (in this case, the manufacturer) owns the carrier relationship and is responsible for shipment planning and tendering. Payment terms are typically “FOB Origin” since the Buyer is paying for the freight after delivery (as opposed to prepaying it to the Supplier). Buyers can also adjust routing at the time of shipment in response to current demand.

One way to execute this process is to use the EDI 753 (“Request for Routing Instructions”) and EDI 754 (“Routing Instructions”) messages. About two days prior to shipping, Suppliers send the EDI 753 to the Buyer that includes actual ship quantity, ship-from location, weight, cube, and other relevant information. The Buyer then determines routing, performs shipment optimization, selects the carrier, and tenders the shipment to the carrier. It also sends the Supplier the EDI 754 which includes routing instructions, the name of the carrier, and the pick-up date.

Overview of Ready-to-Ship Process (Source: ARC Advisory Group; click to enlarge)

Overall, companies can achieve significant cost savings and productivity improvements by adopting the Ready-to-Ship process. These benefits are derived from four key areas:

  • Less expensive transportation rates. In many cases, the Buyer has greater purchasing power (in terms of shipping volume) than the Seller, especially if outbound shipments are also taken into consideration. Hence, carriers are able to provide lower rates in exchange for greater volume commitments. For companies that operate a private fleet, leveraging these assets to support inbound shipments also helps to reduce overall costs.
  • Reduction in overhead costs. Less resources are required (or they can be assigned to more value-added activities) if you automate many of the processes currently performed via telephone or fax, including order status confirmation, shipment tendering and booking, and appointment scheduling. The latter also enables better planning at the receiving warehouse, which minimizes the number of resources required to process deliveries.
  • Reduction in inventory. Poor visibility to the status of orders and shipments creates uncertainty, which companies typically offset by carrying excess inventory. Knowing exactly when an order will ship, the actual quantity shipped, and when it will arrive enables companies to plan and respond to changes more effectively. It also allows them to reduce their safety stock, thus eliminating the need for extra warehousing space.
  • Fewer line-haul and LTL shipments. By leveraging optimization technology, line-haul and LTL shipments can be converted into full truckload or continuous moves. Savings per shipment can range between 5 and 35 percent.

However, having visibility to inbound shipments is not enough; companies must also have the ability to track the status of orders. Most transportation management systems (TMS) vendors now offer order collaboration functionality, whereby suppliers can provide order information via a Web portal (e.g. order receipt confirmation, ship quantity, source location, etc). Exception management and a certain degree of automated response capabilities must also be present.

In addition, optimization capabilities are required to create consolidated shipments, continuous moves, cross-docks, and backhauls. If a company operates a private fleet, the solution should take those assets and resources into account to maximize their utilization.

Finally, appointment scheduling functionality is another critical component. Many vendor solutions allow carriers to see available time slots online and reserve appointments themselves, even for loads that weren’t tendered via the TMS, such as prepaid inbound shipments from suppliers. Schedule availability is typically determined by user-defined business rules and constraints, such as a facility’s hours of operation and dock door assignments and restrictions.

In the days ahead, we will publish other pieces related to inbound transportation. Stay tuned.

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