February 11, 2016
How can you improve operational cash flow? Consider taking another look at your inbound transportation program.
What would you rather have—convenience or cash?
One of the challenges of today’s business and supply-chain management is to maintain positive operating cash flow in a down economy. Wildly fluctuating fuel costs, increasing government regulation, higher taxes, supplier demands, and a variety of other factors all affect the bottom line. Today many companies are expanding their scope of perspective to include inbound transportation as a source of hidden cash.
Traditionally companies focus their cost-cutting/containment attention on outbound transportation. This is natural, since client perception of satisfactory service is heavily influenced by delivery service performance. Sadly, inbound transportation is often controlled by YOUR VENDOR, thereby denying YOU the OPPORTUNITY to Control Your Own Destiny. All too often, DELIVERY CONVENIENCE takes PRECEDENCE over CASH FLOW IMPROVEMENT OPPORTUNITY. Even if your VENDOR tells you he can handle your inbound transportation cheaper than you can, YOU OWE IT TO YOURSELF to Challenge that ASSUMPTION on a PERIODIC BASIS!
Typically a company's PURCHASING DEPARTMENT focus is FINDING THE BEST DEAL for YOUR BUCK SPENT. This is done in a variety of ways, such as buying in bulk, or seeking deep discounts for timed purchases from the vendor or manufacturer, or hitting that MOQ even if it means bring on a little more inventory than you really need, RIGHT? AND, Transportation may or may not figure into the equation, though it has a major impact on YOUR ABILITY TO minimize total landed product cost into the DC. Transportation expense is often ASSUMED AWAY rather than negotiated as a separate cost savings opportunity. The following CASH CONSUMING business compromises can result:
1. Loss of control of inbound transportation carrier selection
2. Loss of control of inbound transportation freight expense
3. Loss of control of the fuel surcharge variable cost
4. Loss of up-stream visibility in the end-to-end supply chain
5. Restriction of the DC to a 24-hour advance-notice maximum for receipt planning
6. Loss of the ability to pursue a variety of inbound transportation-related sheltered income alternatives
No one is questioning that the purchasing department’s focus should be on negotiating savvy product purchases and maximizing discounts. But, inbound freight should be negotiated as a separate issue, taking into account what is in the best interest of the organization as a WHOLE, and its impact on the COMPANY's END-to-END SUPPLY CHAIN control, operations, budgeted expense and operating cash flow impact.
The challenge for business and supply-chain management is to strike a balance among the various functional players involved in the end-to-end supply chain and seek out every possible opportunity to free up hidden cash, thereby contributing to the improvement of operating cash flow and helping to ensure the survival and success of the company.
So, if you have not lifted the hood on the savings opportunity lurking in your inbound transportation program, don’t you think it’s about time you did? Don’t be bashful about asking for expert help from someone who is experienced at identifying potential opportunities to show you the quickest way to the hidden cash to pump up that Cash Flow Statement's bottom line!