We work with suppliers from all over the world.
Many times, the cost of the parts themselves are less expensive than those made in the U.S.A.
Many companies, however, don’t understand that it is really the “total landed cost” that needs to be considered before making a purchasing decision.
The “total landed cost” is typically calculated by adding the piece price + packaging cost + transportation cost + import duties + import taxes to derive the total cost of the material. Some companies also add a factor for inventory carrying costs to allow for the long transit times.
In any case, our companies deal with many suppliers, but when analyzing these suppliers based on highest cost to lowest cost, a supplier from India came to my attention.
Why were we paying over $15,000 to transport 1 pallet every month from India to our plant in the U.S.A.?
After speaking with our plant personnel, it was discovered that our logistics company had advised that ocean shipments were almost impossible to coordinate from the inland location of this supplier to the nearest port.
They suggested air freight and had been moving it this way for years!
We immediately made the change to ocean LCL (less-than-container load) and reduced the cost per shipment by over $11,000!
We had to increase the inventory carrying costs, but our dollar savings was over $140,000 annually.
A few lessons here:
1). QUESTION EVERYTHING
2). DO NOT BELIEVE EVERYTHING YOUR LOGISTICS COMPANY IS TELLING YOU
3). BE SURE THAT PURCHASING IS MAKING DECISIONS BASED ON A “TOTAL LANDED COST” CALCULATION
4). MAKE AN ANALYSIS OF THE HIGHEST FREIGHT COST SUPPLIERS AND ASK “WHY ARE WE PAYING SO MUCH? ARE THERE OTHER OPTIONS?”
No company is perfect; you need to find the gaps that exist and you’ll be a cost-savings hero!
Click the following link for a PRINTER FRIENDLY VERSION of this article: LWL007 Heavy Load from India to USA by Air Really