The document discusses improving inbound logistics to extract more value. It notes that inbound logistics is often overlooked compared to outbound logistics and warehousing. To improve inbound logistics, the document recommends taking a wider view of the entire inbound logistics chain, analyzing transportation modes, and optimizing routes to maximize utilization and reduce costs. Specific strategies mentioned include using "milk runs" to consolidate smaller loads from multiple suppliers onto single trucks and encouraging transport companies to use spare capacity for multiple customers. The document emphasizes planning inbound logistics, considering incoterms, and integrating supplier forecasts to improve vehicle utilization.

1. GETTING IT RIGHT:
EXTRACTING VALUE FROM
INBOUND LOGISTICS

2. When managers talk about ‘logistics’, they are
often referring to warehousing and transport; that
is, the storage and movement of ‘things’. One vi-
tal element of that set is frequently missed out:
inbound logistics. Ignore this and what results is a
bottleneck, hampering operations and locking up
capital in static materials. Get it right and material
flows are opened up with a consequential release
of working capital and an increase in efficiencies.
While much effort is usually spent on improv-
ing and optimizing warehousing, from holding the
optimal inventory to reducing pick time, from pro-
cessing received goods to loading and dispatch,
little is done about inbound logistics. Equally, it
is often the poor cousin of outbound logistics,
which is optimized for time-to-deliver and cost,
balancing modes of transport with required ser-
vice levels.
How often are raw materials, work in progress,
or finished products simply assumed to ‘appear’
at the receiving gate? How frequently is inbound
transport subjected to the same cost, efficiency
and scrutiny as outbound? Usually, the only metric
of concern for inbound logistics is a Boolean as-
sessment of time which asks: “will/did the materi-
als arrive on time”?
Getting it right involves taking a wider view of
inbound logistics, analysing the whole inbound lo-
gistics value chain, knowing what is due, where it
is coming from and by when, and optimizing the
modes of transport to maximize their utilization, all
balanced with the cost of transportation.
There are several ways to improve inbound logis-
tics. Consider the situation where each supplier has
a separate transport assigned to it to bring materials
to the customer. To improve this, the ‘milk run’ meth-
odology (see figure 1) looks to share the transport by
taking on several small loads from different suppliers
within easy reach on a looped route, effectively driv-
ing down the total transport cost per item. The major
courier companies, such as UPS and Parcelforce do
exactly this when mapping their routes for collection.
Alternatively, transport companies can be encour-
aged to use spare capacity with several customers,
enabling a reduction in the overall cost of transport
and reducing prices for all of those customers. When
the airline LAN Chile was facing high costs of opera-
tion, they reviewed their routes to maximize the uti-
lization of space in their aircraft, even if that required
aircraft not flying circle routes (flying from airport A
to airport B and back again). This enabled them to
reduce their prices for airfreight for their customers.
GETTING IT RIGHT:
EXTRACTING VALUE FROM
INBOUND LOGISTICS

3. SO HOW CAN INBOUND LOGISTICS BE IMPROVED?
Three elements need to be considered:
1. Local economics. In many regions, vendors use CIF for their incoterms, often at in-
flated rates. This has the added challenge of making it harder for buyers to collect products
with their own FOB trucks, which reduce the overall costs. When setting the terms for de-
liveries, buyers need to consider the incoterms and liaise with Logistics to make best use of
transport in reducing the overall costs.
2. Planning of inbound logistics. Usually, scheduling software is restricted to managing,
if not optimizing, truck arrival times and offloading points, but analysis of truck utilization is
rare. This will result in long queues of part empty vehicles at the entry points, increasing the
time, and therefore cost, of using those vehicles.
3. Forecasting. A good forecast should encompass production, planning and sched-
uling. Often, vendors are reluctant or unable to confirm accurate times for the collection of
products from their sites, and with added complications such as long distances, urban traffic,
and so on, these becomes difficult to predict. Therefore, a good forecast is one that inte-
grates across suppliers, allowing vehicles to take advantage of smaller loads, for example, so
improving the vehicle utilization.
Optimizing inbound logistics is a proven lever to reduce the cost of the supply chain. While
the reduction of fuel costs may have taken away the urgency of doing so, the companies that
will benefit most if and when oil prices rise will be those who have tackled it successful.
BEFORE AFTER
Figure 1. How the ‘milk round’ can reduce inbound logistics costs

4. London - Moscow - Perth - Rio de Janeiro - São Paulo
www.visagio.com/emea
VISAGIO is an independent, global consultancy that helps organisations realise their operational ambi-
tions through practical, focussed and sustainable implementation. We provide advisory and manage-
ment solutions, primarily in the areas of supply chain management, business process transformation,
people & performance and shared services.
Our experienced and well-qualified team brings the best methodologies, tools and services to bear, to
solve our clients’ most complex operational challenges, with tangible and long lasting results.
Juliano Ferrario is a Senior Consultant in the Supply Chain practice of Visagio’s Rio de Janeiro office
Len Pannett is a Partner in our Visagio EMEA office, based in London