Almanac · 26 · Inbound · essay
Inbound terms
Rob Balawender · Editor
Prepaid is not free. PPA can be more expensive. Purchasing and transportation disconnect.
Prepaid is not free, and PPA can even be more expensive. Purchasing and transportation experience a disconnect. Freight is a cost component of all materials acquired. It shows up in one of three methods: freight included in procurement (Prepaid) as net landed cost; freight added to the invoice as PPA; or freight under buyer control — Collect.
The hard part is optimal terms — which method brings the product in the door at the best true cost. To quantify that, true cost of goods versus freight must be flushed out. Companies need to communicate those terms to vendors and monitor routing instructions once they are set. The time required is extensive without the systems and modeling to keep score.
Pull a sample of inbound and ask for the allowance or the buried freight, not the story. Rate those shipments as if you had collected them. Where the allowance is richer than the collect, change the term. Where prepaid is a black box, you do not have landed cost.
Picture this
Three methods · who controls inbound freight
Purchasing will hear this as an attack on their unit price. It is not. It is the only way their unit price is true. Show them one vendor, in dollars, and let them keep the win.
See also: Inbound management · Inbound routing · PPA and cash flow
When you want that number on your own books: the diagnostic.
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