Global Logistics and Supply Chain Strategies - April 2008 - (Page 60)

Freight Audit Bill Can’t Show All Mistakes that Hurt the Bottom Line BY JEREMY DOTSON Jeremy Dotson is a freight compliance specialist with APEX Analytix, a provider of accounts payable software for error prevention and fraud detection, recovery audit services, and procure-to-pay compliance solutions. Visit www.apexanalytix.com. S ince a well-run logistics and supply chain operation is critical to business profitability, there are continual pressures to drive down costs and find ways to operate more efficiently and effectively. One best practice many well-run companies use in response to this pressure is to audit freight bills to make certain they are being charged the appropriate rate. But if you think a freight bill audit is all you need to eliminate shipping-related errors that can impact your bottom line, think again. If your company is like most, you have specific routing guidelines your vendors must use to select a shipment method and carrier. But auditing your freight invoices won’t tell you whether your vendors complied with your routing instructions in the first place. If they routinely fail to do so, you may have a costly problem. Industry estimates show inaccurate freight bills add an average of .02 percent to a typical company’s annual freight costs. But vendors who fail to comply with established routing guidelines can have twice the financial impact—an average of .04 percent. If you work in a large enterprise with an annual freight spend of $200m, for example, that can amount to an $800,000 annual drain on your bottom line. Know, though, that these industry estimates are just that—estimates. There are many real-world examples from some of the world’s largest and most respected companies where multimillion-dollar mistakes were uncovered. Most often these mistakes are the result of process breakdowns. They can happen whether you ask your vendor to refer to a routing guide you’ve provided or send them to your own online system that selects the lowest-cost carrier for a given shipment. If you aren’t regularly auditing to determine whether your vendors are complying with the instructions you’ve provided, you are clearly running the risk of inflated freight bills that place your company’s hard-earned profits at risk. Here are a few of the most common—and costly—sources of errors that can impact your bottom line. Failure to combine shipments Most companies require vendors to ship merchandise traveling to the same destination on a single trailer. If instead your vendor overlooks your instructions and ships on multiple trailers, you’ll end up paying a significantly higher freight bill. An audit conducted for a regional chain of department stores showed 133 of its vendors made this mistake in a single year. Failure to create a single bill of lading Even if your vendors comply with instructions to ship a full trailer, the benefit is lost unless there is a single bill of lading for less than truckload shipments. That’s precisely what happened to a leading manufacturing company. The firm’s shipments were typically small in volume, so its routing guide instructed vendors to combine multiple purchase orders onto a single, LTL trailer. An audit showed many suppliers simply failed to follow instructions. Not only did the company lose volume discounts, but most of its small-volume shipments fell under the carrier’s minimum rate. Having to pay the guaranteed minimum for each bill of lading was costing the company millions annually in excess freight charges. Selecting the wrong carrier or shipment method To achieve the most advantageous rates, most companies require vendors to use specific shipment methods and carriers. But mistakes can happen and vendors can make the wrong judgment call. For example, a manufacturer in India—worried that a massive production delay would result in the loss of an order with a large, U.S.-based retailer— decided to ship the merchandise by air to the retailer’s nearly 500 distribution centers and stores. The shipment was sent collect rather than being 60 APRIL 2008 www.apexanalytix.com

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Global Logistics and Supply Chain Strategies - April 2008 Contents Editorial GL & SCS Exclusive Fast Forward Up Front Cover Story: Continuing to Add Ever More to Their Offerings, 3PLs Are - At Your Service Over the Long Haul Opinion: Freight Audit Bill Can't Show All Mistakes that Hurt the Bottom Line Opinion: The ‘Good-Freight’ and ‘Bad-Freight’ Trucking Customers Industry Voices

Global Logistics and Supply Chain Strategies - April 2008

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