Here’s a post that was originally published on the UltraShipTMS Blog (http://www.ultrashiptms.com/concrete-roi-from-freight-audit-through-tms-software/)
Concrete ROI from Freight Audit through TMS Software
Freight audit and payment solutions deliver solid ROI compared to other types of business applications. A good freight audit solution yields tangible cost savings. Just try to calculate the ROI of an employee collaboration platform, or a sales force automation solution. Good luck – you’ll need it! Solutions like these are frequently justified as a “cost of doing business”, because the benefits are so hard to measure. But, implementing a good TMS freight audit module drives quantifiable, “hard dollar” savings and some “soft dollar” savings too. This post will examine the hard savings that will stand up to scrutiny from your CFO, not soft benefits about which he might be skeptical.
Hard Dollar Savings
Hard dollar, quantifiable savings—savings you can use to convince the CFO that your investment in freight audit software is a good one—occur in two main areas:
- Eliminating Incorrect Billing – Without automation, there’s a good chance you’re paying incorrect freight bills. These could be invoices that aren’t consistent with your contract rates, or which have additional assessorials or surcharges that aren’t warranted. Duplicate invoices are also a problem, and in some cases, there might even been some fraudulent invoices. Industry benchmarks show billing errors can easily add 3-5% to your freight spending. Automate your payment process and find those 3-5% in savings,
- Process Automation Savings– Manual freight payment processes are labor intensive. AP teams without automated tools estimate shipping costs and make other judgments that leave money on the table. Moreover this is an inefficient way to utilize staff. Consider automating these processes using a TMS freight audit module. Your staff can focus for example on the 20% of freight invoices that don’t immediately pass the audit system. The remaining 80% of invoices – checked automatically by the system – would flow through to payment automatically, requiring zero manual effort. That’s a reasonable goal, and if you have five people paying freight bills you could cut that 80% to just one person.
So let’s add up the savings on a hypothetical freight spend of $80 million/year. Cutting the number of AP staff working on freight audit from five to one (assuming clerks cost $75K for salary, benefits, and overhead), the savings are:
Eliminate Incorrect Freight Bills: 3-5% of $80 million = $2.4 to $4 million
Process Automation Savings: 4 clerks @ $75K loaded cost = $300K
Total Annual Savings: $2.7 million to $4.3 million
Not bad! Especially considering that your investment in software should be much less than this. If your CFO is wondering about the 3-5% figure, point him to this article, or to other industry benchmarks that show similar numbers. To back up your case, just find a handful of real examples from your company, showing some incorrect or duplicate invoices that you’ve paid.
TMS-driven freight audit also delivers “soft dollar” savings through improved analytics, and stronger carrier relations (which can lead to improved procurement), both adding to the bottom line savings. The soft dollar savings will be icing on this cake because, although the CFO isn’t going to take them to the bank, that doesn’t mean they aren’t valuable.
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.