Here’s a blog post I wrote that appeared on the UltraShipTMS blog:
If you could save a conservative 3% on $100 million in freight spend via freight audit and payment automation, your $3 million savings would easily pay for a TMS investment.
What are your options when it comes to freight audit and payment? Here are the main ones:
1. Do It Manually – Handle your freight invoices through your normal AP process, using your ERP system’s payable module. It’s good enough for paying your other bills, so why not freight bills? However, an ERP system won’t provide your AP staff with much insight into the rates carriers should be charging you. Worse, you might be prone to paying duplicate invoices, or even paying fraudulent invoices. Lacking proper tools, even the sharpest AP department will leave a lot of money on the table.
2. Freight Payment Provider – All of your freight invoices are received, checked for correctness, and then paid by an outsourced provider. But understand, this requires an IT system implementation with the service provider in order to work properly. Carefully consider if this service provider will perform over the long run before awarding the contract. The major risk is – should the provider do a poor job managing relations with your key carriers or paying them promptly – you’ll have problems getting carriers to accept your freight, or difficulty negotiating good rates, being perceived as a “difficult customer”. Some freight audit providers require the shipper to advance the funds to make payments to the carriers, putting shippers at risk for fraud or loss due to provider insolvency. Why give a service provider an interest free loan? Many shippers are rightly uncomfortable with this model for these reasons. An alternative approach is to only advance the provider enough to make specific carrier payments, or better yet, let the provider instruct the shipper when to make each carrier payment. These approaches are improvements, but require more sophisticated systems integration.
3. Use a TMS Freight Audit Module – Wherein shippers use a module within Transportation Management Systems to receive, audit and pay carrier invoices. While the downside is that you need to provide staff to run the audit process, if you implement a good TMS freight audit module, with a lot of automation, the staff required to keep the process running is minimal; likely less than your current levels. Several other benefits include:
a. Shipper keeps control of payments, and has peace-of-mind vs. outsourced models, which are prone to operational issues or even fraud;
b. Implemented well, TMS can be the low cost solution, since you don’t need to pay a freight payment provider, year-after-year;
c. You can provide rapid feedback to carriers on their billing issues, allowing you to coax them into improving their billing quality;
d. Finally, your freight payment history data is your best data source on your true spending on various carriers. Keeping this in-house is valuable since this is a strategic asset you should use for supply-chain analysis, modeling cost savings programs, and carrier negotiations.
Next time we’ll talk about key features to look for in a TMS Freight Audit and Payment module.
Michael Sadowski is Principal Consultant at CamiApp, a firm that provides consulting on logistics and supply-chain IT issues to 3PLs, shippers, and software companies. Previously he was a CIO in the 3PL industry (where he led the creation and implementation of several TMS and freight audit and payment systems), and an executive in a TMS company.