The buzz today is all about controlling freight costs. Profit margins are under pressure for many manufacturers, distribution companies, and anyone who ships freight. It’s important to know if your carrier is invoicing you at your contracted rates or the quote you received when you chose them in your transportation management software system. Are appearing mysteriously on their invoices to you? Or are they’re combining LTL shipments in order to give you full truckload rates? Checking the transit times is equally important; goods-in-transit are being financed; it’s important to get them delivered and sold. The volatility of oil prices means the freight rates need to be constantly monitored because 3rd-country sourcing has become more common, while customers demand more frequent and faster deliveries.
Manufacturing and selling a product is easy; but market-share and profits lie in seeing who can get that product to the customers cheapest and fastest. Often, a freight audit can aid a shipper in catching costly errors, with the best way coming through both automated and manual freight audits. However, as you will read further, both require time and effort, both of which are not as easy to obtain by a shipper.
Management: Going on the Offensive
Management of profitable shippers is cognizant of freight audit and logistics issues, and sets a corporate tone that logistics, or logistics management, is to be considered an important segment of management planning. In a 2010 study, the Aberdeen Group identified the following common factors in companies they considered “best-in-class” shippers. These companies ensured that their carriers were the following, which can be uncovered in the freight audit process:
- 95.45% were compliant in their contract costs through a freight audit process
- 94.7% were compliant in their routing requirements
- 5.71% decrease their freight costs annually (per unit carried)
In the same study, Aberdeen identified the following factors in those companies they considered laggards. These shippers seemed to take less interest in their freight costs because:
- 50.45% of their carriers are compliant in their contract costs
- 57.8% of their carriers are compliant in their routing requirements.
- 0.65% reduction in their freight costs annually (per unit carried)
These aren’t profits lost due to bad contracts or competing for market share; these are Euros, Dollars, and Sterling being left on the table by a management who does not recognize the importance of logistics, and more specifically, a post invoice freight audit in today’s business climate. Regardless of the size and volume of the shipper. It’s up to management to set a tone that logistics count.
The Freight Audit
If a company audits every invoice, it likely costs as much in personnel or added technology as is saved in finding any errors. Without some level of automation, personnel costs makes an audit cost-ineffective: too large an audit adds extra costs that might not be worth the salaries expended in recovered-costs, too-small an audit is a statistical waste of time and effort.
It’s important to remember that the freight audit is an after-the-fact issue. While recovering costs is important, enlightened management can use the audit to determine if the carrier is complying with the freight contract, and is thereby qualified or disqualified from participating in future freight contracts.
Real saving in shipping and logistics comes not just from being invoiced properly, but rather from using performance data for future sourcing and procurement of freight.
Rising freight cost is an emerging area of concern for manufacturers, distributors, and all shippers of freight as seen in recent years. Thus the importance of a freight audit service when it comes to matching what you were quoted at time of shipment versus your actual freight invoice. The cost of freight has been rising due to the increase in oil prices, regulation, and capacity crunches, and all freight cost is highly dependent on the cost of transportation, which relates directly to fuel prices and the New Hours of Service. With high fluctuations of fuel costs, low visibility of the future freight costs, and high complexity of the freight quotes, freight cost verifications are vulnerable to human and process errors, and this requires proper auditing to ensure that the organization does not overpay for services it did not incur. Fortunately, with automation and and manual freight audits management of the shipper has peace of mind to both visibility of your freight invoice variances as well as freight invoice accuracy and carrier compliance.
As the business world is discovering daily; simply gathering ‘data’ is not the answer; the answer is how the ‘data” is implemented – or what is the cost of not implementing it at all.
Require both Freight Audit Automation and Manual Freight Automation
If you are an executive of a company who ships freight, you have options, but as clearly stated above, a manual freight audit can take up valuable resource from your core focus, and sometimes the investment in the staff to manually freight audit every invoice is not feasible or economical. There have been many freight audit technology platforms, such as freight auditing software, that has come about to aid in this process, but how do you now the accuracy? Does the software talk to your transportation management system seamlessly? Some do, some don’t, that is always why at least a manual spot check is needed from time to time to check and balance the technology.
Or you could outsource your freight auditing to a company soley focused on this, but our suggestion is to see in the hiring of an outsourced logistics provider, that they provide freight audit services, both automated and manually, as an integrated part of their service offering. If so, see if their automated freight audit solution speaks to the transportation management system software, or even better is embedded within. If the freight audit automation is embedded alongside the carrier rating engine then the TMS knows the price at which the shipper was quoted and then what was invoiced, and automatically catches any variances. Then, make sure your freight customer service representative looks through each variance and works with the carrier to correct or learn why it occurred to mitigate future occurrences.
Outsourcing this process to an embedded freight audit process along with manual checks keeps you as the manager in the know, and empowered to focus on growing your own department, and not keep money on the table. You can see the freight audit process from Cerasis below (again, we try and stay objective and not salesy, but we think this is worth taking a look at to check your own provider):
A Holistic Approach to Freight Spending Yields Better Bottom Lines
The best companies use a freight invoice as the starting point to measure their carriers; it’s accuracy (or not) is a simple way to gauge the professionalism of the carrier, plus the freight invoice is a starting data point needed to track shipping and routing accuracy of shipments.
Good companies possess a management that proactively works to control and/or reduce logistics costs, and they do this by the utilization of dedicated in-house staff or by outsourcing their freight and logistics.
Those informal companies who take a more hands-off approach to logistics management (the ones who still manually collect data via fax, email reports, and printouts, and then try to collate it on a spreadsheet) typically are less profitable and won’t be in business very long.
Some 36 % of informal companies claim the software is too expensive, or too difficult for them to implement, thus they lack a centralized program that allows them to recognize, or even find, the data necessary to negotiate competitive freight contracts because they are missing out on keeping a carrier honest through either an automated or manual freight audit process.
How do you currently conduct a freight audit?