THE FREIGHT AUDIT FUNCTION and UTILITY,
DRIVING CORPORATE PERFORMANCE
Executive Summary
Freight expense represents a significant portion of the overall corporate
budget. Because of
its size and relative position, freight expense plays a major
role in corporate profitability.
Freight expense for the average company is large enough
to warrant attention and intelligent management.
Freight Cash Asset Management® is a valuable treasury tool that can convert
the freight expense to an asset.
In order to properly control the expense and maximize
its potential opportunities, it must be understood.
The data required for an effective and efficient freight pre-audit is robust
and comprehensive; the aggregation of these data collectively
represents a corporate knowledgebase whose information can
be used to drive corporate performance.
Singularly, the freight audit and payment control function is a very specific
business activity that must be performed. Errors and abuses on the parts of carriers,
shippers and consignees can be significant.
The discovery and control of these errors and abuses
will result in freight cost reductions and cost avoidance.
A good freight audit and payment control utility that collects important
corporate data from the transaction stream is best described
as a “freight
cost control and management information portal”. (FCCMP)
In
a previous white paper, “Logistics,
the Beginning of the New Potential” we spoke about the
advantages of using the micrologistics components, in this
case, “transportation” to act as a “corporate penetrator”.
The “penetrator” is a virtual process that travels
through and across departments and disciplines, placing and
extracting data and information, always processing as it moves.
The “freight cost control and management information
portal” uniquely performs both as “penetrator” that generates
information and as a process that assures the integrity of
the freight budget and the accuracy of the freight payable.
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This white paper
will discuss the freight pre-rating, pre-audit, management
information, reporting and payment control function and provide
the reader with an understanding and appreciation of the importance
of the freight audit and simultaneously demonstrate how to
identify and use the benefits and advantages that flow from
the audit process.
Description
Clearly, the “audit function” can have many meanings; its most specific
definition is:
·
An examination of
freight bills to check their accuracy.
·
An adjustment or
correction of the freight charge.
·
A comparison between
the shipping contract and the freight bill for verification
purposes.
Another view would describe the audit function by task:
Assigning
freight charges to the Bills of Lading
Auditing
the freight bills prior to payment for rate, nomenclature,
extension, service verification and duplicate payment
Providing
management reports
Various factors such as perspective, education, training and job description
will also influence how we think of the freight audit and
payment control utility. Accounting
or Purchasing would think of the audit function in terms of
their specific need; the Traffic Department would also view
the subject from their particular perspective.
All of the departmental perspectives would be correct.
Their unique understanding is important because it
will directly influence their contribution to the utility,
its process and use. However, a universal or corporate understanding
must be achieved without which the capabilities, opportunities
and advantages of the FCCMP could not be recognized.
The singular “definition” of the freight audit function
(see above) can and should position this utility directly
in the center of every company.
Consider the following limited examples of the data
required for a proper audit: Origin, Destination, product, quantity, shipment
date, consignor and consignee; add to this data the connective
data such as: invoice, purchase order and credit.
All of this data, most of which is collected from the
transaction stream can reside in a corporate repository.
The data and its end product, information, have universal
corporate appeal and function.
This information is refreshed constantly and represents
some of the most current data available; timely information
increases the potential for better and more accurate decisions.
In order to maximize
the benefit of the audit and to take full advantage of its
overall capabilities, the freight audit and payment control
utility must be understood at many levels including individuals,
departments and the company as a whole. Once a common understanding is achieved, it
must be communicated effectively and efficiently to all appropriate
parties. These descriptive and definitional mandates
are prerequisites for the successful development, implementation
and use of the freight audit and payment control utility.
Components
The Freight Cost Control and Management Information Portal focuses on
two (2) primary activities:
Freight Cost Management
Management Information
Freight Cost Management (FCM) is that part of the supply chain process that enables an effective response
to the direct and indirect, the obvious and hidden costs of
moving goods across the entire supply chain. It includes,
but is not limited to the following specific tasks:
Pre-rating—assigning freight charges to the contract and/or source information
·
Freight cost accounting
·
Freight Accrual
·
Performance monitoring
·
General ledger
·
Pre-pay and Add
Pre-auditing---examination of the freight bill prior to payment:
·
Auditing the freight
bill for rate, nomenclature, extension, service verification
·
Validating the account-establishing
payment responsibility
·
Freight Terms
·
Service verification
·
Service level
·
Comparing the freight
bill with the Bill of Lading
·
Duplicate payment
prevention
·
Compliance
·
Routing
·
Quantities
Payment Processing---preparing the freight bill for payment:
·
Reducing the payment
to the lowest legal and lawful charges
·
Supporting the reduction
with the governing authority
·
Transferring appropriate
material to the payables responsibility
·
Transmitting appropriate
payment information to the payables responsibility
Management Information is a derivative of the entire audit utility.
Timely and accurate information are the quintessential
requirements for success and performance. Because the pre-rating attribute of FCCMP begins
the data collection process, its initial, accretive and connective
data form the foundation for the audit while developing the
corporate knowledgebase. All of the available data that flows
through this process is prolific, comprehensive and robust.
As a management tool, the availability
of this continuously refreshed and universally applicable
data offers the entire company a boundless opportunity for
information, when and how it chooses.
Proposition
A properly configured Freight Cost
Control and Management Information Portal will be driven
by an expert system, delivered through an ASP and/or BPO process
model, and powered by
the corporate
knowledgebase. This
configuration efficiently and effectively satisfies all of
the complexities of the audit simultaneously provide the most
comprehensive and robust information and management tool.
To support this proposition, this white paper will:
Discuss the
necessity of the freight audit function
Present a comprehensive
freight audit, information and payment control strategy
Describe a
method of approach for developing and implementing the FCCMP
Establish the
FCCMP as a “corporate centric” imperative
Identify value
added services and benefits that are driven by the FCCMP
Why is the Freight Audit Function Necessary?
Freight expense in the average
American company consumes between 6 and 18% of every sales
dollar. Domestically, freight expense is second only
to agriculture in the GDP.
A typical freight pre-audit,
the components of which are described above, can save as much
as 33% of the freight cost during the first year implemented
and average as much as 14% annually thereafter.
With the performance information available at anytime,
management has the opportunity to effectively address errors
or abuses; this information should continually drive out poor
performers while improving operations and reducing costs.
Carriers, shippers and consignees
produce errors and in some instances abuses. Each of the freight audit elements such as shipment
date, weight origin and destination, etc. influence the freight
charge; as such every audit element must be identified, scrutinized
and verified. The error and abuse conditions can vary from
occasional to constant; the FCCMP should analyze its discoveries
and report information such as, pattern recognition and competitive
assessment.
Areas of exposure for error and/or
abuse can begin with the shipment or class weight. As an example, the Bill of Lading weight could
be 50 pounds and the respective freight bill could indicate
500 pounds. This kind
of error demonstrates the need for service verification to
be an absolute requirement of the audit function.
Service verification identifies the actual and potential
freight cost generators, validates them and denies any detected
errors or abuses and records the appropriate information. In some instances freight terms and customer
service policies are at odds.
This situation occurs when customers may require a
carrier to perform inside delivery services, but the service
was not requested by the shipper nor presented on the Bill
of Lading.
Errors and abuses can appear in known and unknown
locations; they may be simple or compound. The FCCMP will reject incorrect charges, pay
only the correct amount and forward the abuse or error condition,
on-line to the appropriate department for “exception review,
resolution and system updating” while recording the data for
subsequent informational and reporting purposes.
Strategy
Implement, in the shortest period of time and utilize a fully automated
“Freight Cost Control and Management Information Portal” (FCCMP)
whose function and capabilities are scalable, that respect
FCM standards, support data collection from the transaction
stream as well as supporting information for management use.
The FCCMP and all of its capability must be available
24/7 to all authorized users and operate in a highly secure
environment. The FCCMP
will provide appropriate information, enabled by the corporate
knowledgebase to all authorized users.
Method of Approach
“Convergence” or a “coming together” of like and disparate knowledge bases,
skill sets and talents presents significant opportunity for
new paradigms and improved performance.
If you agree with this notion, it should be axiomatic that the
ASP
and BPO “Freight Cost Control and Management Information
Portal” model represents the most efficient and effective
freight audit, payment control and management information
solution.
Corporate Centric
Imperative
The data required to drive a proper and correct freight audit has there
basis in many different areas of a company. The “transportation
penetrator” that we spoke about is pervasive and capable of
collecting data from many areas of the company. Individually
and connectively the data is prolific, robust and comprehensive.
The information that this data is capable of providing
can be very important to the entire company. Sales, Marketing, Purchasing, Treasury and Finance,
in addition to the micrologistics components and macrologistics
strategies are just a few examples of departments that need
the information and its functional capabilities.
This robust and all-inclusive data is a corporate knowledgebase;
this repository of information can improve the accuracy and
timeliness of management decisions resulting in improved corporate
performance. Because
pre-shipment, in-transit and post shipment data is representative
of many company areas, the potential information has universal
appeal. The corporate knowledgebase or corporate information
repository, because it is developed from the transaction stream
the data residing in the corporate repository is valid and
accurate.
As an example of the centric imperative, consider the traditional application
of a “Distribution Analysis”.
For the most part, it would be seen as a Logistics
or Transportation department report.
However, it could have significant benefit for the
Sales and Marketing Departments. Specific product information, either by class
or SKU is either directly available or connected to the Bill
of Lading. With origin, destination, weight, shipment frequency,
pieces, consignee and product ID, the “Distribution Analysis”
can demonstrate product distribution by various characteristics. More specifically, a shampoo that contains
“henna”, a product typically associated with certain markets,
might be presented on the analysis as a void or lack of anticipated
product distribution in that certain market or region. Appropriate management alternatives would then
be employed to determine if any failure exists and how improvement
could be made. Thereafter,
an appropriate on-line driven exception file would allow the
improvement process to be properly monitored.
The data for another important analysis would also support and drive information
to Treasury. Cash management
applications and their subsequent performance monitoring requirements
are easily produced from this corporate knowledgebase.
Given the necessity of the audit function and the nature and availability
of the comprehensive and robust data associated with and attendant
to the audit requirements, it behooves every company to recognize
the centric nature of the corporate knowledgebase and act
accordingly.
Value Added
Services
The freight audit function is a necessary business function that serves
a critically important role in controlling transportation
costs. This necessary function is highly capable of
driving additional value.
Some examples of the value added benefits that can be derived directly
from the pre-audit and payment control activities are:
Accounting and Finance Department
Accrual Reporting
General Ledger
Budget control for various corporate activities
Expense cross referencing
Tax control
Budget performance
Competitive assessment
Treasury
Cash management
Float opportunities
Freight Cash Asset Management
Purchasing Department
Reduced quantity pricing
Enforcement of Terms of Purchase
Chargeback routines
Performance monitoring
Sales Department
Forecast and analysis
Promotional performance
Product Distribution
Salesman performance
Customer service monitoring
Conclusion
The pre-auditing of freight bills is a necessary component for success.
It reduces transportation costs and achieves cost avoidance.
The primary purpose of the audit function is the assurance
of paying only the lowest legal and lawful freight charges.
The data and process necessary for best practices incorporates
a host of value added services and benefits that are capable
of driving corporate profit and performance.
It is not often that a single and necessary business utility is capable
of addressing and satisfying many specific functions and tasks
across the company, nor are there any other departments that
can produce a corporate knowledgebase.
The automated “freight cost control and management
information portal” operating as an ASP and BPO process models
provides a highly secure, robust and comprehensive solution.
The Internet based “Freight Cost Control and Management Information Portal”
is an excellent model that properly satisfies today’s freight
audit, payment processing and management information requirements. The functions and features properly address
the audit requirements for spot and telephone rates as efficiently
and effectively as they process more traditional rates and
charges.
The combined resources of an expert system and the customers handpicked
staffs offers one of the best opportunities for effectively
and efficiently managing the complexities of today’s freight
audit and payment control requirements.
For more information about how TransportGistics, Inc. can help you drive
corporate value and performance from the freight audit function
please contact jwest@transportgistics.com
About TransportGistics, Inc.
TransportGistics is a
global, multi-product and services company that provides market
leading, simple, incremental solutions for transportation
management and logistics functions within the supply
chain.
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to education is portrayed through its advancement of professional
logistics and transportation programs.
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of Excellence in Wireless Internet and Information Technology
at the State
University of New York-Stony Brook.
Continuation
Please consider this white paper as a continuum
in this subject area, succeeding white papers will address
common issues and address them with common solutions.
We encourage our readers to direct any specific questions
or comments to papers@transportgistics.com.
Disclaimer
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not necessarily the opinion of TransportGistics, Inc. nor
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