Freight Management – The Next Frontier in Supply Chain Savings
By Sophie Rutherford
You’ve been successfully reducing supply chain costs for years – negotiating better prices, moving more of what you buy onto contract, standardizing, automating… But you still need more cost reductions. What’s next?
Freight management is one of the answers. As I’ve been talking with health system leaders in the last few months, it’s clear that freight savings and related efficiencies are top of mind. And while freight management isn’t new to most healthcare systems, it contains some uncharted waters for new savings that can be gained, especially with greater vendor management and compliance.
It’s time to laser focus on freight management and what you can achieve for your supply chain organization.
Here’s a quick view of the usual process today: a purchase order (PO) is created for an item, and because freight costs are not provided at the time the order is placed, freight is usually not a line item on the PO. The order is physically received, received into the MMIS, the invoice is received into AP and gets paid.
What’s missing in many organizations is the approval process for freight. Freight charges appear on the invoice as “Freight” or “AOC” (Add-on Cost). There are many descriptions used for freight, and often we see it called out as “shipping cost,” “handling cost,” “carrier cost” and even “manual order placement cost.” If the invoice is being processed electronically as an 810, the expense often passes right through the process unnoticed as invoice is paid.
For organizations with a third party freight vendor engaged, there’s usually more visibility to the freight cost, but little reconciliation. Third party freight vendors can be very effective when there is oversight, vendor compliance and reconciliation.
What are some of the steps you can take to start improving freight management? Today, we’re seeing the more advanced organizations taking freight management to the next level:
- One major NY hospital system is working with vendors to consolidate shipments, so instead of receiving three boxes, each containing one item, they’ll get one box containing three items. They anticipate significant cost savings as a result of this effort.
- A large national health system has created a department to focus solely on freight management, creating and implementing new initiatives within their hospitals and distribution centers.
- Identify your recurring overnight shipments. What vendor are they coming from? What department is requesting the overnight delivery? Can better inventory planning eliminate some of these constant (and expensive) charges?
- Examine the many manual processes in your receiving and delivery processes today. If you map these processes, you might identify redundant steps that may be eliminated.
- Replace paper with barcode scanning on inexpensive, smart devices. You can improve productivity, reduce labor, reduce costs and importantly, create an electronic audit trail that will drive greater efficiency.
- With new regulations related to implantables, including tissue and devices, it’s even more critical to automate the receipt and delivery process. Look for systems that can produce an electronic chain of custody record that includes package condition, temperature and date/time stamp for delivery, to help ensure compliance and support patient safety.
Freight management is the new frontier for supply chain savings and efficiencies. With focus in this area, you can successfully capture more savings and identify ways to advance supply chain processes. As you look for ways to improve, check out InnerTrack from Jump Technologies. Now in use at major healthcare organizations across North America, InnerTrack helps efficiently manage the movement of packages throughout a health system - automating manual processes, creating visibility, and documenting an electronic record of every transaction.