Don’t Pass the Buck

You can’t manage what you don’t measure and you can’t control what you don’t manage – or something to that effect. The same is true of freight costs when it comes to passing off the management of your transportation to your customers.

Manufacturers/distributors who insist on making their customers responsible for freight through arranging their own transportation (pick up with own trucks or common carriers) may be inviting unnecessary, additional costs in to their business, making them less competitive overall.

There are a number of reasons companies choose to stay away from arranging the transportation/delivery of their products to customers. Perhaps they don’t have the infrastructure or skill set to manage transportation at their organization. In many organizations, processing freight invoices may require a full time accounts payable person. Imagine each shipment that you invoice also having an invoice for freight.

How do you keep up with this highly transactional process at your company – you can make it your customer’s responsibility or you can outsource to provide the expertise to handle your firm’s transportation needs.

In order for your customer to become more competitive enabling them to buy more of your fine products, you have to help them become more competitive. Transferring the responsibility for transportation and delivery costs to your customer is not always the way to reduce your overall “logistics” spend.

Competition forces some companies to reconsider their customer-arranged transportation methods. Picture your selling of widgets and making the freight component your customer’s responsibility while your closest competitors include freight, and make the whole buying transaction virtually “seamless” to their customers – and cheaper. The bottom line to the customer on similar quality merchandise is the cost of the goods which also includes delivery – whether you arrange or they arrange. All else being equal they would likely prefer you delivered to them and not pass along the added burden of having the transportation management infrastructure and freight invoicing; something they must endure by being your customer.

You might be a much larger organization relative to your customer and can attract better overall transportation costs from the ability to negotiate volumes and consolidation/more economical delivery options.

Ask those responsible for shipping at your company how they can help you become more efficient in your operations and they’ll likely tell you that they need to control your shipping dock. To load (and sometimes partially unload) a customer’s own trucks (have you seen some of the gems of the transport industry they show up with?) makes it difficult for many shippers to control their company’s costs at the dock.

If you arranged the transportation for your customers you can have regularly scheduled appointments set up with a fewer number of carriers. These carriers will know how to handle your products; affording you better service to your customers on a more economical cost basis in most instances. There is a professional image that can be conveyed with the use of these carriers to your customers. You control the type and cleanliness of the equipment making for better overall satisfaction.

Who would know how to handle your products better – you or your customer? You might even be able to reduce the packaging/skids/stretch wrap or any other product protection that you must now provide to your customers because you are shipping in your “controlled” transportation environment; with your labeling, with regular drivers who know your products.

If you outsource the responsibility to handle the freight on your products to your customers then you have no idea what the average customer is ultimately paying for your goods and what they spend to get it in their possession. Transportation can be both an advantage in service and costs but you must be able to control it in order to manage and improve it.

You should at least review your decision not to be involved with the ultimate delivery of your goods to see if it’s right for you. To say you won’t make the investment in managing transportation could be eroding your customer base. Ask your sales staff if the handling of transportation for a seamless transaction to your customer would improve their ability to sell your products? If they say no then you might be paying them too much.

Even if you directly pass along the cost of transportation to your customer, you can likely buy better, smarter, reduce packaging costs, create less havoc on your shipping docks, improve shipment scheduling and provide more reliable customer deliveries with the management of the freight component of your product costs. What if your customer’s carrier or pick up truck can’t make it in for a few days past their appointment time? Do you have to move their product out of the dock area? Do you have to hold off in invoicing the sale? Will you be ready for their truck when it waltzes in, unannounced, some days later, disrupting the flow of your shipping?

When you choose to sell products you need to be able to do so in the most economical fashion possible. Far too many companies are unnecessarily putting the burden of delivery on to their customer’s backs. This may include risk management, claims liability and processing which might be better addressed as part of your areas of direct responsibility.

Your customers won’t be your customers if you don’t investigate the impact of this decision on your business. Get involved in the process – you can’t afford not to.