When it comes to adding value in the final product, inbound logistics is considered as a primary activity. Inbound logistics includes basically the parts of Receiving Raw Materials, Storing the Received & Distributing it for the Production.
Most critical part of inbound logistics which can be affected to the value adding process would be receiving raw materials. This is mainly due to involving uncontrollable 3rd parties in this process.
Who are the 3rd parties involved in this process??? If we analyze the receiving process, it includes mainly two 3rd parties. They are the Supplier who manufactures the Raw material (If the company purchases raw materials from a dealer or an agent his entire chain) & the transportation part which will be handled by another 3rd party (especially if you are purchasing raw materials from another country). The delays incur in this process will clearly affects the entire value chain which will result delays in delivering the final product to the end customer.
In this article I’m going to focus on how we can increase the value in the transportation area of inbound logistics. Value includes 2 key elements
- Lead time in delivery
- Cost
Based on the process more priorities should be given to reducing the lead time in delivery.
Reducing the Lead Time in delivery
Assume our raw material supplier is in a different country and they send us the goods in LCL (Less Container Load) basis. Normally we need the goods to be delivered from Supplier’s warehouse to our warehouse. In order to deliver this goods, we agree a delivery term with our suppliers. Most Popular 3 delivery terms would be EX work, FOB (Free on Board), CIF (Cost Insurance & Freight).
- Going with FOB Shipments
If our priority is to bring the raw materials as quick as possible to our warehouse, with my experience I would prefer a FOB agreement with the supplier. Since this will nullify the transportation risks in an unknown country (Supplier will hand out the goods to the port with the documents) which will save time in transportation and also the cost will also be borne by the supplier & the other most important part is, we will have control of the goods from the suppliers port. So we can decide which transit time we prefer to get the goods from the Supplier’s port to our DOC yard. (Direct transit, via transits)
- Nominating a one shipping agent to handle the entire transportation
If we agree the delivery term for FOB, we have to nominate an agent to deliver goods from the supplier’s port to our location. However the common practice is to nominate a separate shipping agent for the freight part and nominate another agent for the clearing part. The clearing agent will bring the goods to the warehouse. With the practices I have realized, this process has below mentioned constraints.
- Communication failures among the nominated two parties which take unnecessary additional time to deliver the goods to the warehouse
- Cost will be always high when taking two parties instead of one. If we select one agent, he would have more areas of reducing Cost.
- Responsibility will be shared among parties. When there are several parties, they tries to transfer the responsibility to one another.
If we nominate a single agent for delivering the goods from the given port to our warehouse, we can overcome the above mentioned constraints & to deliver the goods with a less lead time and with a less cost.
- Nominating a Core Loader who uses his own warehouse to de stuff for LCL Shipments
Normally after receiving the goods to the local port, it takes around 3-4 days to de stuff a container and an additional 1 day for the transportation. However, there are a lot of core loaders who use their own warehouses to de stuff the container. If you nominate this type of a core loader, they can de stuff the container and provide the goods to your warehouse within 48 hours. Which saves additional 48 hours of the lead time.
With this practice, we only take 12-13 days of a transportation lead time from China for a FOB LCL shipment to receive to our Warehouse. Which previously took around 16-17 days with a very low cost than previous.
If your priority is to deliver LCL goods with a less lead time and with a less cost, I prefer this strategy of taking as a FOB shipment and nominating one agent who has his own warehouse to de stuff and deliver. However, if the supplier agrees to deliver the LCL as a CIF, it is up to your purchasing team and to the logistics team to prepare a costing before you convert it to a FOB. However, still the lead time will be less in a FOB with this strategy comparing to a CIF delivery.
From the above mentioned process, it will always add high value to the inbound logistic process since it reduces the transportation lead time and cost of raw material delivery which ultimately affects the final value of the product......
If you need the goods early as possible for the Production at a low cost Converting to FOB and using a one freight agent who has his own warehouse to dyestuff and deliver to your warehouse would be the most effective strategy to add value for your entire process
