Freight Audit and Recovery: The Secret to a Smart Supply Chain
By Scott McDevitt, President & CEO, Translogistics
Does your shipping department regularly audit its freight bills? Research from Texas A&M suggests that more than 80 percent of shippers overpay for their freight. Without regular freight auditing, the volume of overpaid or fraudulent bills can become unmanageable. This leads shippers and supply chain executives to utilize the capabilities and resources of a third-party logistics (3PL) provider, or beyond that, a logistics solutions provider (LSP).
Carrier mistakes are challenging to identify and can be time consuming to deal with, but an LSP that provides freight audit and recovery services will do the grunt work of examining, adjusting and verifying freight bills for accuracy. When done correctly, this exercise has not only been proven to recover significant funds–often hundreds of thousands of dollars–but also provides the intelligence needed to mitigate carrier mistakes in the future to save money year over year. More than that, freight audit programs that utilize the intelligence of a transportation management system (TMS) empower companies with end-to-end supply chain visibility and the ability to proactively conduct business and manage carrier relationships.
How LSPs Conduct Freight Audit and Recovery
With shipping charges making up approximately ten percent of a company’s total expenses2 and establishing a host of variables from base rates and discounts to fuel surcharges and accessorial charges, regular freight auditing is an enormous task for in-house accounts payable departments to tackle. In fact, for companies with multiple locations and without a TMS to enable enterprise-wide visibility, fully monitoring freight expenses and exposure is almost impossible.
An LSP will start a freight audit program by examining every single line of invoices from the past six months looking for errors such as invalid accessorial charges and classifications, duplicate charges, incorrectly assessed tariffs and service-level failures. For any identified errors, the LSP will contact the carriers on your behalf to recover the disputed funds and deliver savings. Some LSPs deploy a TMS to analyze freight data and contracts for additional savings and efficiencies.
Enterprise-Wide Benefits of Freight Audit Programs
Freight auditing is a time-intensive process that shipping departments and executives often overlook as an option due to a lack of time and resources.
With the assistance of an experienced LSP and an intelligent TMS, there is no room for excuses about freight auditing being too time-consuming or burdensome
With the help of an LSP, however, companies are quick to recognize the immediate value of auditing, as well as the long-term impact it can have on a bottom line. In addition to reducing your administrative expenses and gaining insight into your unique shipping characteristics, the most valuable benefits a professional freight audit and subsequent expense management program provide include savings, enterprise-wide visibility and a proactive operating approach.
□ Recover Funds and Realize Significant Savings
Freight audit programs recover an average of 2-6 percent of total freight costs. Beyond that, regular freight audit and recovery programs deliver continual monthly savings by helping combine shipments, optimize rates and avoid added costs. LSPs are also experts at negotiating carrier contracts and for companies who blindly renew contracts each year due to a lack of resources, leveraging the experience of an LSP to manage carrier relationships and negotiate rates is advantageous.
□ Improve Shipments and Enterprise-Wide Visibility
Without the freight audit and expense management support of an LSP and TMS, companies have little to no visibility into their supply chain, especially if maintaining multiple locations. Without these resources, companies tend to rely on incoming freight bills to confirm shipment deliveries. With an LSP and a TMS however, companies can track shipments and detect patterns and efficiency opportunities, measure total freight spend and carrier accountability, immediately identify discrepancies in freight carrier bills and receive regular reports on the operation of each facility.
□ Operate Your Business Proactively, Not Reactively
By leveraging the freight audit insights from an LSP and TMS, companies can make smarter decisions when it comes to freight expense management and enterprise-wide operations. For priority orders and critical shipments, for example, shippers can view carrier choices and their corresponding on-time percentages to make more informed and cost-effective decisions. The expertise gleaned from an LSP combined with the functionality of a TMS also enables shipping managers to train their vendors to regularly optimize deliveries and automate shipment records.
Choosing the Right Freight Audit and Recovery Partner
As companies prepare for freight auditing, it is critical that they collaborate with a 3PL or LSP that aligns with their needs and expectations. Many freight audit and payment companies promise to recover funds within a set timeframe–while other LSPs focus on cleaning up the way your company conducts business to mitigate discrepancies from happening in the future. Ideally, your LSP partner will offer both. To find an LSP that focuses on accomplishing your short- and long-term objectives, ask them questions like:
□ How do you form carrier and vendor relationships and what advantages do you currently hold?
□ Will you utilize and/or integrate a TMS to help with freight audit and recovery programs?
□ How will you ensure steady improvement of my logistics operation?
Taking charge of your freight expense management is the single smartest action shipping departments and supply chain executives can take for their company. With the assistance of an experienced LSP and an intelligent TMS, there is no room for excuses about freight auditing being too time-consuming or burdensome. With significant savings typically recovered in just months, companies that are serious about improving their bottom line and fostering growth should prioritize engaging with the necessary resources to recover money and improve long-term financial propensity.
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