In the building materials distribution industry, freight costs can significantly impact your bottom line. As materials become increasingly expensive and shipping costs rise, distributors must adopt strategies to reduce these expenses. One of the most effective ways to lower freight costs is to negotiate better freight terms with your suppliers and logistics providers.
In this blog, we’ll explore actionable strategies for negotiating better freight terms on inbound orders and how ERP systems can play a key role in optimizing the entire freight management process.
🚛 WHY FREIGHT TERMS MATTER
Freight terms are the conditions set between a distributor and its suppliers regarding the costs and responsibilities of shipping goods. Properly negotiated freight terms can save your business significant costs, while poor terms can lead to higher shipping expenses and longer delivery times.
Some common types of freight terms include:
FOB (Free on Board): The seller bears the cost and responsibility of getting the goods to a specified port.
CIF (Cost, Insurance, and Freight): The seller also pays for shipping and insurance to deliver goods.
EXW (Ex Works): The buyer assumes all responsibility for the shipment from the supplier’s location.
🛠️ STRATEGIES FOR NEGOTIATING BETTER FREIGHT TERMS
- Consolidate Shipments
Problem: Small, frequent shipments are often more expensive because they do not maximize the capacity of the truck.
Solution: Work with suppliers to consolidate orders into larger, less frequent shipments. By doing so, you can reduce the per-unit freight cost.
ERP Tip: Use your ERP system to monitor inventory levels and order histories to identify opportunities for consolidation and optimize order scheduling.
- Negotiate for Freight Discounts Based on Volume
Problem: Suppliers may offer standard freight pricing that doesn’t reflect your actual volume.
Solution: Negotiate volume-based discounts or flat rates based on the amount of goods you consistently order. Establish long-term agreements with suppliers to ensure better rates over time.
ERP Tip: Leverage historical data from your ERP system to provide insight into your purchase frequency and volumes, allowing you to negotiate more effectively.
- Set Clear Delivery Expectations
Problem: Unclear delivery schedules can lead to unexpected delays, missed delivery windows, and added costs.
Solution: Negotiate clear, agreed-upon delivery windows to minimize the risk of rush fees or last-minute charges. Ensure that your suppliers understand the importance of on-time delivery.
ERP Tip: Track delivery deadlines and order lead times within your ERP system to stay ahead of potential delays and communicate better with your logistics partners.
- Leverage Technology for Real-Time Tracking
Problem: Lack of visibility into shipment status can cause frustration and delays.
Solution: Work with freight carriers who offer real-time tracking so you can monitor shipments from start to finish. This will help prevent unexpected delays and allow you to plan project timelines accordingly.
ERP Tip: Integrate real-time tracking and shipment status updates into your ERP system, allowing for better visibility into delivery status and expected arrival times.
📈 HOW ERP IMPROVES FREIGHT MANAGEMENT
- Freight Cost Monitoring
With ERP, you can track freight charges associated with each order, helping you identify trends and patterns in shipping costs over time.
- Shipping Analytics
ERP analytics can help you evaluate which freight providers offer the best rates and service, allowing you to make more informed decisions.
- Invoice Matching and Verification
Use ERP to automatically match shipping invoices with order data, ensuring that the billed freight costs align with negotiated terms and eliminating billing discrepancies.
🏁 FINAL THOUGHTS
Negotiating better freight terms can help you reduce costs, improve delivery efficiency, and ensure your business stays competitive in the building materials distribution industry. By leveraging ERP systems to track shipments, monitor expenses, and consolidate orders, you can optimize your freight management process and boost your bottom line.
📞 Need help integrating freight management features into your ERP system? Let’s streamline your logistics operations.
