Freight Audit: Complexity not leading to lower costs
A lot of time and efforts are put into Sourcing & Procurement. Heavy rate negotiations, benchmarking, running simulations, agreeing on calculation rules, consolidation rules, and other business rules. But, who can check that the agreements made are actually applied during invoicing?
Common practice teaches us that there often exists no alignment between the sourcing team, the operations team, and the finance team. A gap that could lead to wrong invoicing slipping through. An outsourced freight audit & payment solution can offer the solution to this common issue.
Freight audit does not only benefit a single company’s unit (logistics department) but might affect an organization as a whole by providing a great logistics visibility tool (BI and centralization of data). This helps to understand and analyze the business and based on that make decisions and implement changes.
What are the benefits of freight audit?
• The shipper can concentrate on its core activities. For companies with a large freight turnover, it is more costly to perform freight audit in-house.
• Standardized processes allow freight bills to be monitored quicker.
• 100% correct freight payment as a result of standardized processes.
• Business rules and calculation rules maintained by a third party, which allows the process to be transparent and fair.
• Use of software capable of dealing with auditing complex business and calculation rules and automating this task.
When approaching freight audit in a strategic sense, specifically two benefits were emphasized
• Advanced reporting and business intelligence (BI) tools. Today's freight audit and payment services focus on applying deep analytics, married with supply chain consulting expertise, to glean insights from data—then delivering those findings quickly and clearly to help shippers drive both tactical and strategic decisions that improve supply chain efficiency and remove costs. In response to customer feedback and requests, many freight payment companies have developed new types of services, improved reporting capabilities, and added more telling key performance indicators (KPIs).
• Centralization of data. Housing all the data in one place means shippers can gather the information they need from a single source—rather than collecting various components from carriers, freight payment companies, and TMS solutions in order to gain full supply chain visibility. An excellent resource is created from freight payment activity that allows analyzing the network’s current state, and make decisions about supply chain activities.
How to ensure an efficient freight audit process
• Transparency and simplification
• Complex rules are “forgotten” with a chance that they are differently applied in a later phase.
Complexity is usually subject to interpretation. The driver of a complex rule that is not well described is the supplier. They are dictating their version to the person who checks the invoice once sourcing is not involved anymore. Tools for auditing complex logics are commonly not available, leading to invoices not being (properly) checked. The consequence is a gap where a supplier can profit from non-transparency.
• Rate agreement validity periods are old or missing
• Application rules and explanations per different package types are not always provided
• Carriers use often different fuel surcharges then provided
• Not all service levels are provided in the order data
• Zone description is missing in some rate cards
• Not all additional charges by carriers are in the rate cards
• Postal codes are not provided for the remote area surcharges
Alignment between departmental interests delivers efficiency! To allow an efficient Freight Audit process you need rate tables and business rules that can be applied on the available shipment data to support automation like automatic cost allocation and invoice interfaces. Freight Audit outsourcing creates one source for reliable logistics and accounting data, accessible by logistics, sourcing, finance people and carriers.
Freight audit sourcing & procurement: Data Strategy
Procurement departments have seen strong growth over the last years in many companies and one of the very important pillars is that process must be followed. Although that is key to almost any function in large organizations, at ControlPay Global Freight Audit, we believe that having the right freight data is more important. To learn more about the data capabilities of freight auditing, use the tiles below here.
Business case: Airfreight contracts
Shipper is using an integrated solution for shipment booking and freight audit. Item:Fuel surcharge per airline .
Sounds like a good plan from sourcing side on transport cost reduction, but it is:
- Adding labour to the Booking Department (Shipping Team) as they need to know the airline to be able to calculate the full costs (also for customs documentation). This means additional communication with forwarder.
- Adding complexity, which is an increased risk for issues on costs between shipper and forwarder, which need to be resolved (wrong airline, forgotten to fill in, etc.). Needs labour to resolve this.
- Extra management of the Fuel Surcharge needed (multiple formulas, ..)
- Carrier is in control, while it is best if Shipper is in control
- It does not improve transparency, fuel surcharge analysis becomes more difficult.
About ControlPay Global Freight Audit
ControlPay is a global freight audit provider aiming to improve the overall logistics performance for their clients, rather than only look at freight audit from a financial point of view. This is why ControlPay tracks the transportation issues and follows them up, e.g. extra freight costs and other unpredictable charges that can be monitored with the help of CP. Moreover, we do not only focus on the verification of freight rates for any flow and mode of transportation, but we also manage to automate account coding and invoice posting, which is a serious efficiency win for Finance.
More freight audit blogs, eBooks and infographics
How to get rid of 5 spot rate management issues
Freight audit and payment strategy for global companies
Freight Bill Auditing: Why it is important
Logistics Costs: 6 tactics to lower them
The good, the bad and the ugly of In-house Freight Auditing