A comprehensive Guide for best practice Freight Auditing
Freight Auditing Guide
Introduction – What is a Freight Audit?
A Freight Audit is a great starting point for analyzing your current freight invoices and, (depending on the process and capabilities selected), freight manifest data against your current rates & contracts with your third party carriers to ensure you are not paying more than you should; applying a credit application process for any uncovered errors / overcharges. It can also be viewed as a post invoice freight audit to review previously paid invoices (typically going back 6 – 12 months), again, checking for any errors and overcharges and establishing a process for negotiating rebates on already paid invoices.
This introductory article on the subject of Freight Audits is helpful for explaining Freight Auditing in more detail.
This simple Infographic shows the basic steps of a Freight Audit
Who needs to implement a Freight Audit?
Anyone who has a reasonable volume of freight that they are shipping on a weekly basis, and especially those for whom there is added complexity such as:
- lots of assessorial charges,
- B2C deliveries,
- a high variety of consignment types e.g. parcels, pallets, skids, etc.,
- and those requiring multiple services e.g. before 9am deliveries, satchels, Road Express, Bulk / General freight, Rail etc.
Freight can represent 10% or more of your freight costs. If keeping costs down and having visibility on those costs is important for your business, then you should consider implementing a Freight Auditing process. There are many types of errors that can crop up depending on the carriers you use, your freight profile, the freight software system both you and your carrier uses and how well they are managed.
Sources say (external link to Inbound Logistics or something) that your invoices can have X% errors, leading to overcharges of XX. But Reconciliation of just the invoices is not necessarily where this process should stop. A best practice solution should also assist with verifying consignment data from a manifest file to ensure that you are capturing all potential savings from the process, and not just scratching the surface with a mere invoice to rate card comparison. This, along with using the reconciled data for Freight Business Intelligence Reporting (link to Power BI article?) is where the true value of the Freight Audit process comes from, increasing your savings by another 5-30%.
The Benefits of Freight Audits
So, we have outlined some good reasons for conducting a Freight Audit but let’s have a closer look at the reasons why this exercise is worthwhile.
There are many members of the executive team of any distribution company that have a mandate to reduce costs within the business: CFO’s and Financial Controllers, Operations, Supply Chain and Logistics Managers. The focus range of these roles may vary, but all have an interest in the production, warehouse and shipping costs. Knowing the figures on the potential savings to be uncovered outlined above should be a compelling reason to explore in more detail the benefits of conducting a Freight Audit for their company.
At Freight Controller, it is our belief that Freight Auditing is one of the best, if not the best, place to start with for finding ways to reduce freight costs.
Freight costs are complex; freight invoices are complex, and they have, (increasingly), high volume. Therefore, it can be difficult to efficiently and cost effectively gain complete visibility on freight activity and costs. When you conduct a Freight Audit you get the opportunity to:
- claw back any potential overcharges
- improve Accruals and Freight Recovery processes
- improve the efficiency of your payment process
- gain insights into the types of errors that are occurring in your freight costings in order to rectify them
- gain an understanding of your true freight costs from reconciled data
These are the first level main benefits, but from that first step you have the capability to enact further benefits such as:
- the ability to warehouse your reconciled data for both current and future reporting and data analytics
- the visibility to fully control your strategies through reporting that is accurate and timely and can therefore ensure your actionable insights from the data are truly moving you in the right direction;
- the ability to recalibrate to ensure you hit your targets
- the insights to implement changes to your business (and within your carrier’s businesses) to ensure you are working at current best practice (LINK to Troubleshoot Logistic Errors)
- the cleansed and reconciled data enables a resyncing of all systems and data sets involved in your freight operational processes to ensure accuracy moving forward
- the cleansed and reconciled data also enables you to use this data for profiling and benchmarking your freight for any future changes to your carrier distributions systems; i.e. for use in freight tender / RFP analytics to ensure you obtain the most optimized rates and distribution design smarts for your individual business requirements
These further benefits offer a higher level of optimization of your freight business systems and processes across service and operational improvements, along with freight costs reductions and represents the modern way of implementing a data-driven freight management solution.
The secondary benefits within a phase two, if you like, or value add of the initial Freight Auditing process, can increase your freight cost savings by between 5 – 30% on average.