This past week, I was talking to my friend, Jan-Terje, about one of his customers and the value they were getting through using their TMS for freight auditing. I will get to his story shortly, but let’s face it; electronic freight audit is not the glamorous part of logistics technology. However, it’s the kind of “blocking and tackling” that every company should do well because of the cost savings to be had and tremendous insight into how your business and carriers actually operate. Electronic freight audit also may be one of the original and best “big data” opportunities in logistics.
Back to Jan-Terje’s story. His customer, a leading Norwegian distribution company, implemented a TMS for planning and executing freight and freight audit. After a number of months in operation, the company started to review their invoices and noticed that, on a regular basis, small shipments were sent from one of their DCs in the south to locations in the far north via full truck transport. If you don’t know much about Norwegian geography, we are talking about a trip of over 1,000 miles. As you can guess, they were grossly over paying.
This company determined that their problem wasn’t the TMS configuration or rogue freight spending. The TMS was just executing what that the distribution planning system was giving it and this shipment mix was not expected. Instead, they needed to change their ordering practices and do a better job of consolidating orders and required delivery dates prior to giving them to the TMS. Without evaluating what was actually happening through electronic freight audit, this company would have not known how the TMS was being used and the impact external factors (in this case, shipment size and requested delivery frequency) were having on freight costs.
Another company that I know used electronic freight audit to get a better handle on the complexity of the billing process and the total cost for moving freight. In this case, a chemical company was using barges to move bulk chemicals. As you can guess, there are quite a few assessorial costs that could apply and that could show up well after the material was moved – the barges are not the only thing that moves slowly in the barge industry. For example, depending upon the chemicals moved, there could be a barge cleaning charge applied to the shipment. However, this charge would appear weeks (or sometimes months) after the actual shipment was executed and the initial invoice was delivered. Without the ability to synchronize all of the charges over time via electronic freight audit, this company would have not had a complete picture of the total cost to move its goods via barge.
To excel at electronic freight audit takes more than a good TMS solution. First, it takes unwavering discipline managing carriers to get them to provide the right data electronically. Second, you need onboarding solutions to deliver that data in a timely and complete fashion. The carrier community is incredibly diverse in its ability and interest to provide high quality electronically. Simply put, some carriers see this opportunity for what it is – an opportunity to reduce costs and get paid faster. Others “don’t get it” - they either don’t have the electronic capabilities or fight getting on-boarded and do a lousy job sending consistently sending the right data on a timely basis. Then there are the majority of carriers who fall in between.
There are a number of lessons that have been learned over the years to get past these challenges.
- The electronic freight audit process starts with your contracts. If your contracts are custom per carrier, then you can expect that the onboarding process will also be custom per carrier and take a long time. It will also make “apples to apples” cost comparisons between carriers much harder.
- Because of carrier diversity, you need a good degree of flexibility in your carrier integration solution and, where possible, use or create carrier onboarding standards. Virtually every carrier modifies the electronic industry document standards. If you cannot get the carriers to adopt an industry standard or your standard version, you need flexible mapping tools to normalize the data. There also needs to be “low tech” portal options for the smaller carriers to enter the data manually.
- Your company is not in the carrier onboarding business, so work with someone who is. Mapping and carrier data management can be complex and, if the number of carriers that need to be onboarded is in the hundreds, you need a team of experts to get it done quickly.
- You need to scorecard carrier data performance. Do not assume that data delivery performance is consistent. This could be the most important thing you do to ensure that the solution is successful over time. Put data quality provisions in your carrier contracts.
Sometimes the best opportunities to reduce logistics cost and gain greater insight into your operations come from the most basic business functions. So what is your organization doing with electronic freight audit? Let me know.