Maximise the outcomes from management of your freight data and reporting through taking advantage of industry expertise
You can’t manage what you don’t measure, but how many companies are putting the effort in to truly optimise their freight processes and margins?
And if you don’t get around to assigning this critical business requirement to an internal resource, what is the true cost? How will you know that your business is making the right decisions based on accurate information?
Carrier Invoice Reconciliation
There are 3 ways that you can manage your freight data for cost reduction such as carrier invoice reconciliation:
1. Manual – at high labour cost, which also includes the opportunity cost of diverting staff from core business needs
2. Automated – through a software system that must be maintained on an ongoing basis (rates, fuel levies, etc.)
3. Outsourced – to a third-party company that specialises in freight auditing with a combination of expert analysts and best practice tools
1. Manual. Most companies who try the first option admit that they cannot spare the time and cost associated with going through each and every consignment on their bill; rather they take an approach of spot checking and looking for prices and services that jump from the page and warrant further investigation, i.e. the choice to send large, and/or heavy items by airfreight.
This might lead them to investigate the sales value of a particular order against the freight costs for that item. This will send them along the path of investigation to check alternative carriers that they have relationships with and what it would have cost to send the freight via an alternative service or carrier; which in turn might lead to a training meeting with the warehouse operators; perhaps a policy update for when to use which carrier; or when to pass on freight costs to the receiver.
This is all a very logical process but done manually this can take considerable time and effort. So, you can see why warehouse managers and others whose job it is to keep freight costs in check will avoid investigating every consignment through a manual process.
2. Automation. Software is required to do this properly. Checking freight via a manual process is only viable for those with a very small amount of freight, i.e. less than 50 consignments a week. Anything more than that and it becomes prohibitively expensive to manually check, sort, report and analyse given the time that it takes and the opportunity cost of putting a resource to such work rather than concentrating on a core task of the business.
With option 2, once you have put the time and effort into setting up templates for each of your carriers and their services, and the time for training on the particulars of the system, this option will allow you to process an invoice usually within 15 minutes, and then, the trained eye can look through for information on any errors. Therefore this may take around half an hour to assess a single invoice; a great improvement on the many hours taken the manual way in option 1.
Some systems will further assist your efforts by proffering reasons for the error, i.e. wrong fuel levy, previously invoiced, wrong zone. Obviously those that can assist with this further analysis can further speed up the reconciliation process. This saved output of the invoice reconciliation can be used as a credit request to the carrier for proof of the overcharges.
3. Outsource. This option is also a superior method to option 1 for the company whose freight is growing in both complexity and volume. Although it may seem on first appearance to be more expensive than option 2, clients often find that staff turnover with the inevitable loss of knowledge and experience, coupled with the time and effort maintaining the system, is higher than originally expected.
Further, Option 3 can be more cost effective due to the advantages of scale. Outsourcing commonly offers leading edge technology that brings quicker, more accurate and cheaper processing of repetitive tasks.
Using professional freight experts’ services, who conduct these activities for a range of manufacturers, importers and retailers as their core activity, also provides flow on advantages.
The Case for Option 3 – Outsourcing
3PL and 4PL (third and fourth party logistics) companies that specialise in this area maintain a level of expertise to apply across all of their clients and therefore the soft costs of labour and resources are lowered. Daily use of freight systems across various industries ensures an efficient and cost effective reporting service.
Further costs savings are achieved by eliminating the need to manage and maintain the system. This aspect also talks to the opportunity cost. Ask yourself, if you, or a member of your staff, do not have to factor this important, yet not urgent, (and therefore easily overlooked), work into your weekly tasks, what would that free you up to do instead?
How does overlooking this important task, as some of our clients admit doing, impact the running of your business? It’s a bit like letting a garden go. At first a few weeds do not have much impact but if left unattended for too long, the work to bring the garden back to its prime is considerable, and some plants may die.
If this garden produced fruit and vegetables, the analogy is even closer to business; your family may have less to share at the dinner table! Your business may be spending more than necessary and you know where that will lead.
“Junk in, junk out” is the I.T. saying. If you do not maintain the system for all the changes that occur; rate changes, new carriers, new destinations, insurance, client database data etc., and then your reports will be meaningless at best, dangerous at the worst if you still rely on them for your decision making on policies and guidelines.
The expertise of a 4PL that offers these services runs beyond just knowing how to speedily use the software; maintenance requires a keen eye and understanding of what the data mean in the real world; understanding that can only be gained through years of experience in the industry.
Further, these experts can ‘read between the lines’ of an invoice to understand why the error or extra charge occurred. The software can do this, to a certain extent too, but we often have clients who tell us, for example, that they didn’t realise they were getting charged a redelivery fee because the client was not there when the driver tried to deliver, and have subsequently been taking a hit to their margins.
This educational opportunity from our experts can lead to a re-think on a range of business policies.
Reports can be pretty dry, hard reading if they are just on a spreadsheet system such as Excel. Creating ‘snackable graphics’, such as: • pie charts,
• line charts,
• bar charts
• area charts
• scatter charts – lines, marked, etc.
allow for an intuitive, quick assimilation of the salient information from lines and lines of spreadsheet data.
Having someone internally with the skills and knowledge to know which way to represent the data, and to execute on that method is a fairly advanced skill that required time and training and can cause some problems with continuity if they were to leave or move on to other work within the company.
Outsourcing this work to a company that does this on a daily basis for a range of different types of shippers ensures continuity and the accurate use of the original data.
These types of snackable content work well for reports on freight data such as: • Carrier, State, Group, Cost Centre, and combinations thereof
• Consignment volume & type: weight, packaging, and combination with the above factors
Other Reports & Services that Benefit from an Outsourced Management & Maintenance Model
Forecasting reports such as:
• Freight Bill Predictor – when all consignments are recorded into a centralised system, including the pricing data, you can run a report in advance to know what to expect for your next freight bill and proactively balance your budget accordingly.
• “What If” Carrier Analysis – for predicting precisely the difference in pricing between your incumbent and prospective carriers. When this is managed by experts with the ability to independently assess and negotiate with hundreds of carriers and service types; across road, air, rail and sea, this becomes a powerful service to optimise your freight business processes.
Retrospective analysis reports such as:
• Freight Costs as a Percentage of Sales; know your sales margins are protected and use the reports to manage policies such as freight mark ups, ‘free into store’ etc.
• Operator-driven Least Cost Carrier Optimisation; ensure warehouse staff are using and selecting via least cost carrier functions, or other service level policies i.e. certain stipulated carriers for sensitive freight. It is one thing to have an automated system for this but when over rides exist (which are useful), then you need to know that guidelines are being adhered to
• Consignment Consolidation; for multiple daily orders to the same client address; ensure basic & minimum charges are minimised, whilst optimising weight break pricing models.
The combination of these reports, and the processes that they help to create, can further reduce the impact of this area of business on operational costs.
Some freight software systems allow you to do this reporting for yourself again, as with carrier invoice reconciliation. Once again, this self-service reporting requires a trained expert who has substantial freight experience to properly analyse the results, and the time in the week to spend on maintaining and creating these reports. For the average shipper, that would probably represent one day out of the week, depending of course on if they are also taking the time to put this data into more sophisticated reporting such as graphs and pie charts.
Having a 3 or 4PL partner that can assist with the reporting and the analysis of the results to ensure continuous improvement outcomes from the data leads to maximised freight cost reductions.
Independent DIFOT and Consignment Alert Status Report
A useful DIFOT (Delivered In Full On Time) report that can be produced, as often as weekly or even bi-weekly, an alert on undelivered freight is helpful for providing you with a true sense of the service levels of the individual carrier. What you want to look for is a report that imports raw, unfiltered data that has not been manipulated to improve the percentage of freight delivered on time.
For each consignment you should be able to evaluate:
• the date sent
• the estimated delivery date (based on industry standards),
• the actual date of arrival
• the number of undelivered consignments (not noted as arrived on carriers’ website at the time of report).
• whether those undelivered are added to a bottom total which allows you to work out the percentage of successful deliveries.
Some of our clients are using our new DIFOT service to further reduce their freight bills by deferring payment until freight has been successfully delivered. This report can provide assistance with isolating the undelivered freight prior to invoice’s due date for payment.
This report is currently only available through our in-house expert analysts; the 3rd option that we’ve been exploring in this article.
For more on this new report please read our previous blog article: Independent DIFOT and Consignment Status Reporting
As you can see, there are a lot of advantages to choosing the option of outsourcing freight management to experienced staff who can make the most of your systems, policies and software to ensure that you eliminate any unnecessary costs in this high cost area of your business processes.
Talk to us today if you want to learn more about how to implement such processes to trim the fat from your freight systems, whilst finding the time to focus on the tasks you do best.