Freight Audit Guide
A comprehensive Guide for best practice Freight Auditing
Freight Audit Guide
Welcome to our Freight Audit Guide
Our Freight Audit Guide is the ultimate guide for everything that’s involved in a Freight Audit. If you click the above button you can download a pdf version that incorporates all of the articles that we have created on this important topic to keep and read whenever you have a need to refer to it. Our Freight Audit Guide is of course written from a perspective of the Australian Transportation Market. We at Freight Controller have been assisting our clients with this type of freight optimisation process for over four decades and so we have a wealth of relevant experience in this area.
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. We also call this, as an ongoing, weekly monitoring process, a Carrier Invoice / Consignment Reconciliation service.
A Freight Audit 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, i.e., surcharges
- B2C deliveries,
- a high variety of consignment packaging 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 overall costs. If keeping costs down and having visibility on those costs is important for your business (which of course it should be), then you should consider implementing a Freight Audit as an important tool for assisting you with this goal. 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 that your freight invoices can have errors of up to 10%. 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 is where the true value of the Freight Audit process comes from. Capturing that data within an interactive Dashboard will provide insights for further efficiencies and cost savings. Once you’ve banked that data over a considerable time, you can use that data for a scientific, forensic-level analysis for any future Freight Reviews or Tenders, which typically increase your savings by another 5-30%.
The Benefits of Freight Audits
So, in this Freight Audit Guide, 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 with the move from B2B bulk freight to B2C small parcel freight, with exponential growth in delivery addresses. 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 your methods and goals to ensure you hit your targets
- the insights to implement changes to your business (and even within your carrier’s businesses) to ensure you are working at current best practice
- 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 that are possible 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.
How to Conduct a Freight Audit
Now that we have outlined the main benefits, and I hope, convinced you of the importance, and even urgency, of conducting a Freight Audit, you are probably wondering how best to go about this.
First of all, you should start with scoping the requirements. Is there a particular area of concern? Have you noticed an increase in freight costs recently? Is it as a result of increase in volume? Change in consignment structure e.g. from parcels to pallets or vice versa; more laneways; more customers?
Have the freight costs crept up with one particular division, site, carrier? Are you wanting to conduct the Freight Audit first with one site, or with all; one carrier or all? (Ultimately you should do all, but you might want to start with a priority area).
Scoping also includes the potential to focus on accessorials; do you include post dispatching surcharges such as redeliveries, materials handling, etc.? What tolerance do you put on overcharges? Who will claim the rebates, what will be the process? Who will negotiate with your carrier? Will you be analyzing previous invoices or just future invoices?
Who will conduct the Freight Audit? What is the timeframe for a post freight audit: 6 – 12 months?
Have you put in place a process with the carrier(s) to smooth out any obstacles in claiming rebates?
Do you have the right contacts within the carrier organization(s) for this?
Will this be a manual invoice verification process or can you (semi) automate this? What can you do with pdf invoices?
Will you be merely cross-checking invoices against carrier rate cards or are you looking to include consignment / manifest file data to ensure you uncover all potential overcharges and errors?
A true Freight Audit is not just a Freight Invoice Audit it looks at all relevant freight data sets and therefore can provide insights into how to reduce errors going forward with new systems and guidelines and better matching of carrier service to freight profile which can reduce accessorial charges, and freight costs through better freight rates.
Consignment-level auditing can increase parameters of overcharges and errors by including issues such as:
- Charge weight errors
- accessorial charge errors such as residential, overlength
- number of items / item description
- pallet height errors
Once you have scoped your requirements it’s time to get to it! This includes capturing all freight invoices, ensuring you have all rate cards at hand, capturing manifest file data (if that is to be included – and it should be), liaising with your carrier Account Managers and their Accounts Department, implementing a Credit Application process and troubleshooting errors.
If you make the decision to handle this internally then, to help you with this, we have
provided a step-by-step ‘How to’ for a DIY Freight Audit process here.
Internal vs. External Freight Audit
Given the above complexity in scoping what you will audit and how you will audit your freight it is worth noting that it is quite the endeavor to get this process started and to start this process in a smart way that will optimize the results of your endeavours. If it’s worth doing, it’s worth doing it well.
There are two clear options for implementing a Freight Audit process. One is to do this internally, using only in-house resources, the second is to seek external assistance through a Freight Consultancy business that specializes in this area.
An internal process, whilst might initially seem to be more cost effective and quicker to implement, will increase the likelihood that it will be a more manual process and that will not uncover all the potential erros and overcharges.
The more manual the process, the more time it will take i.e. the more resources. You should also think about the opportunity costs; what could that staff member be doing that is more aligned to the business core goals and tasks and to their skillset?
It is a more manual process, because, even if you have a Freight Management Software (FMS) system to assist, it cannot reach the level of automation that a niche system that a Freight Auditing company can provide. Freight Auditing companies invest a lot in their systems as this is core to their business, and they have customers that have wide-ranging needs across many different industries, e.g. FMCG, automotive, textiles and so on and so their system (and expertise) needs to cater for all.
Going with an internal Freight Auditing process means, without leveraging the best systems available in the market via an outsourced vendor, you will likely not get to a granular level of data and therefore be able to source all potential savings from the process and find all errors; one that can also lead to a step-by-step priority change management process to improve and therefore reduce those errors moving forward.
For more detailed information on the benefits of outsourcing this type of project I would refer you to our article: Why an Automated Outsourced Freight Audit process Optimises your Results.
What to look for in a Freight Auditing Company
If you agree that outsourcing is the way to go, then you need to think about who you will partner with for this Freight Audit project. And this decision is just as important, if not more so, as the decision to outsource.
Some questions to consider if you are comparing Freight Audit vendors:
How many years’ experience do they have in the freight industry?
Obviously both the length and breadth of experience is important in assessing the skills and expertise of a Freight Auditing company. The wider-range of experience with multiple industries across all transport modes will mean they will be able to understand your unique freight profile and needs.
Do they have a well-established carrier network within your market’s freight industry (e.g. Australia)?
The Australian market differs to those of others in say Europe or America. Although such companies might be larger, or be used in your other global offices it would be wrong to assume they know how to adjust to the Australian market and get up and running quickly and smoothly.
Do they have in-depth knowledge of the carriers’ services, surcharges, rate structures, and software system (or portal) for which to ensure that you receive proper analysis of the results for working with the carrier to implement changes at their end?
You need a provider that has close contacts, the right contacts, within the carrier companies to ensure that you get the proper assistance when requesting changes to the carrier’s accounting, or software processes. And you need exprienced staff who know the rate management processes of each carrier,
Do they have information on ROI or Case Studies on Freight Auditing projects?
Being able to access statistical information on Return On Investment data and / or Case Study examples will help to assure you of their capabilities in reducing your freight costs via this type of freight management project.
Do they have established guidelines and processes for implementing a Freight Audit?
Well trained and managed clerical staff is just as crucial as the software systems used in the process. Having access to a detailed SLA on what will be delivered provides confidence on outcomes.
What Freight Auditing technology (if any) do they use?
If it’s a manual process it’s hardly much better than what you can do internally. Costs will go up and it will probably not be as comprehensive as an automated system; you will leave money on the table.
Do they include manifest / con note data in their verifcation process?
If it simply a process of comparing your freight invoice against your rate card there is no independent data from that provided by the carrier. Whilst this might capture some errors it will not capture them all. Plus, there is no opportunity to assess your warehouse & logistics operations to see what improvements you can make i.e. in packaging, to reduce not just invoice errors but consignment errors.
Can they provide you with an FMS System to assist with automating the process?
Having an FMS System is helpful for capturing that manifest data mentioned above. The data can also be captured via the carrier’s software / portal system as well but it is more cost efficient to be able to capture all data within a multi-carrier system.
Can they work with other 3rd party FMS Systems?
At Freight Controller we have our own FMS system that we can offer customers, but we can also use other FMS systems for this purpose, for those companies that have already implemented an FMS or TMS system.
Can they assist with a ‘best practice’ ongoing invoice reconciliation process that incorporates an automated cube and weigh system?
If you don’t accurately capture your weight & dimensions via scales, conveyor belts, laser scans, etc., then you will be forced to accede to the carrier’s judgement on what your consignments weigh and cube out to. This is called a re-weigh re-cube error. Carriers are audited on their systems to ensure accuracy, however if you have your own system for this you can enforce your data as accurate and ensure you reduce those charge weight errrors on your invoices. This requirement is not for all be we have implemented this type of system for some customers for which it has offered a payback within a year or so, (along with saving via warehouse automation, of course).
It’s one thing to ensure you are only paying what you should, and that you are alerted to any sudden changes in invoice or operational processes, but to then be able to leverage that accurate, reconciled freight costing data into BI Reporting, that opens up a whole new level of freight optimisation. If your BI Reports use unreconciled data, they can steer you in the wrong direction, leading to subpar outcomes. Capturing true costs into a BI Dashboard system that accummulates trending data over time will ensure that your next Freight Tender will have a great pool of data from which to customise a perfect match Carrier Distribution Solution for you, leading to a furher 5 -30% reduction in your freight costs.
Once you’ve highlighted the errors you need to obtain any credits from overcharges from your carrier. Having a Freight Auditing company with extensive experience in this area will ensure you set up the right process for negotiating those invoice reductions. This data can also help with guidelines and processes for ensuring you recover the transportation costs from your customers for their sales orders. At Freight Controller, we have the ability to use system smarts to tailor the mark up cost for each consignment according to your customer rules.
Do they merely process the same errors invoice after invoice or do they work with your team to eliminate the errors, thereby reducing the credit note dollar value over time, as well as optimising your distribution / order processing, along with the carriers’?
It’s a good way to keep them in business with you if they simply check off the same error types week in, week out but obviously it’s preferable to have a Freight Auditing company that aims towards a zero error invoice and eliminating all internal logistics errors as well.
Ongoing Freight Auditing and Related Services
An initial Freight Audit project, either pre or post invoice, requires a fair amount of work upfront, and, once the results have come in, a fair bit of work with negotiating with the right people in your carriers’ organisations to ensure you maximise the amount of ‘money taken off the table’, and therefore the ROI of the project.
Once the initial part has been completed and you have the results of the post invoice audit, or the first month or so of pre-processed invoiced results, you should look for patterns of issues such as:
- Charge weight error: are your staff measuring(or weight) consignments accurately?
- If not, what process can you implement to improve on this?
- Surcharge errors: is your packaging causing trouble for your carriers; what changes can you implement to eliminate this error; are you getting lots of regional surcharges, or redeliveries; should you change carriers or add some system smarts to recude this with B2C consignments?
- Is there a bug in your carrier’s software system that they need to correct?
- Are rates and charges aligned with signed contracts; do you need a new contract written up and properly authorised?
- Zero pricing consignments: do you have a rate for that town, and if so is it in the system, or has it been loaded with generic, ‘house’ rates? Is your manifest data accurate?
These are but a few of the issues that can and do crop up that need to be systematically worked through.
Ongoing Freight Auditing AKA Carrier Invoice Reconciliation is still necessary to ensure no new issues crop up as both your freight profile and the carriers’ systems may change over time, creating new types of errors. An ongoing Freight Auditing process is easy to maintain after the first implementation of a Post Freight Audit, but it does require oversight to ensure all systems are kept up to date as well.
We see it as like health insurance or indeed like transport insurance for the value of the goods that you are shipping. You may not need it all the time, but it is important to have it there for when things do come unglued, (and they will).
It is like the ‘canary in the coal mine’ alerting you to the fact that something is amiss, and ensures you fix those freight invoice errors and overcharges before they build up over weeks and months adding unwarranted costs to your freight that is hard to track and undo after the fact and harming your Profit & Loss budgeting efforts.
As mentioned in the Introduction, the next logical step to the Freight Auditing process is to use that reconciled, cleansed data to better inform your decision-making processes for freight optimisation and business goals by gaining visibility on your true freight costs and activity.
Many customers come to us with concerns that they cannot assess their true costs. They admit that they know their costs are going up but they don’t know why. Some have even conducted a freight review, nominated a carrier (or group of carriers) that they are confident based on rates will reduce their costs, only to find the costs have gone up. Isolating the exact cause can be difficult and requires alot of benchmarking and trend analysis with the right Freight KPIs to match your goals.
At Freight Controller we have solutions to match these Freight Cost Optimisation goals through our Freight Business Intelligence Reports via one of our real time, interactive Freight Dashboard: Freight Cost & Activity.
Knowledge is power and, in this day and age, that translates to data is power. Utilising this reconciled data for value-add services such as Freight Business Intelligence Reporting and Analsytics is, we believe, the logical next step.
Along with being used for weekly or monthly reporting this data is warehoused and used for trend analysis and can therefore be used for future Freight Tenders / RFPs. This is becoming the norm to have this type of data at hand in any case. These days carriers want clean, accurate comprehensive data from shippers in order to put their best rates forward. So, this reconciled and warehoused data can increase your bargaining power with carriers and enhance your market competitiveness. It can help to turn your Logstics department from a cost centre to a profit centre.
The data can also be used to ensure any changes you might implement to your carrier distribution network have the intended outcomes, by providing accurate analysis through predictive modelling on rates & services proffered by the carriers as part of the tender process.
Working with a Freight Audit provider who can supply these types of value-add services enables a turnkey, streamlined solution that optimises your freight spend. This type of turnkey solution takes you from a mere freight invoice auditing process to a freight consignment auditing process; from a procurement perspective to a logistics perspective on costing and tender processes, and enables you to leverage your data for full control and visibility.
A Freight Audit process is foundational for any and all freight management solutions you might want to enact to improve your business in the warehouse and shipping departments. As with a house, if your foundation is faulty, what you build with it will be off kilter and will lead to cracks; or subpar results – costing you in time and money.
Really a Freight Audit, in the sense that we are applying to that term, reaches the length and breadth of your freight optimisation efforts: from and initial audit; to ongoing reconciliation of carrier invoices with payment processes in place; to improving warehouse operations and software system processes; to accurate freight costing reports; to profiling and benchmarking your freight; and ultimately to ensuring you have the best carriers, services and rates for your business.
Thanks for taking the time to read our Freight Audit Guide information page. We hope that you have found this Freight Audit Guide both comprehensive and helpful. You can take away a free copy of our Freight Audit Guide by clicking the green button to save or print out for reading at your convenience the more detailed version of our Guide which features a wide range of the articles we’ve posted on this topic over recent years.