How a Freight Audit and a TMS Can Drive Efficiency for Your Supply Chain
Could your company be spending millions on expedited air service and not know it?
It happened to one shipper who didn't audit their freight payments for several years. It turns out one shipment went out air expedited, and somehow every customer order after that went out the same way. A lack of oversight cost the company tens of millions of dollars in unnecessary freight spend.
A transportation management system (TMS) with an integrated freight approval tool could stop these kinds of problems before they occur. The tool implements a decision tree for managers, with multiple levels of approval so that the decision can escalate to another level if a manager is not available for any reason. The tool can be set up to require approval over a specific dollar amount or for certain modes.
A freight approval tool adds management visibility to the front end of the process. An ongoing and thorough freight audit program can save a company millions on the backend. Industry experts estimate that, on average, companies pay 7% to 10% more in freight expenses than they should due to billing errors.
However, freight audit is about more than correcting errors. It will also empower your company with the data to identify weak spots and highlight paths to improve performance. The expedited shipping fiasco was spotted during a freight bill audit. Are there similar horror stories hiding in your billing data?
The freight audit piece should be part of a comprehensive TMS that incorporates a system of business rules and automates many route tasks. That way, managers can focus on managing exceptions and driving efficiencies rather than completing routine tasks. For example, tools like automated spot quoting and reverse auctions deliver a high level of productivity while ensuring the processes follow the established business rules such as carrier and routing selection. Tying the TMS into the ERP will ensure the purchase order information supports the shipment from managing quantities to shipment and delivery windows.
For freight bills created in the TMS, automated audit analyzes bills to ensure the BOL and proof of delivery match to approve automatic settlement. If there's a discrepancy, the bills are flagged for resolution. Automation boosts efficiency and cuts costs with each transaction.
These tools are useful for managing inbound, outbound, and intra-company moves. Look for a tool that's available for all modes that your organization uses—air, ocean, truckload, LTL, and parcel. Don't segment your operations by mode.
Top 5 Freight Audit Targets
- Accessorials: Ensure that any accessorial services were actually received and any discounts applied.
- Base Rate: Ensure the bill starts with the correct rate, whether it's a negotiated or spot market rate.
- Duplicates: Find double billing due to counting one shipment as two or using different options for invoice receipt and payment.
- Classification: Ensure that freight is assigned to its proper National Motor Freight Classification and charged accordingly. Misclassification can cost millions in overcharges.
- Taxes/Fees: Ensure all state and local taxes, as well as customs fees, tariffs, and international taxes are applied as appropriate.
Top 3 TMS Targets
- Spot Auction: Secure loads with an automated auction system that encourages market rates.
- Freight Approval: Avoid surprises with approval for specified modes or shipment costs.
- Analytics: Identify cost-effective carriers and lanes and make strategic decisions.