November 2005 | Commentary | Viewpoint

Freight Damage Claims: Know, Act, Reap

No tags available

The Latin phrase Ipsa Scientia Potestas Est may be the most quoted maxim of our information age—knowledge is power.

In business we use the "knowledge is power" principle to shape our decisions so we can reap positive long-term rewards. One unsung area where properly applied knowledge yields power is comprehensive management of the freight damage claim process.

Go ahead, be crazy like a fox. You may think that's a crazy idea, but for most companies, the freight claims process is an area ripe for harvesting. For some companies, it's the last place to reap cost efficiencies through the strategic use of their unique business knowledge and business process automation.

A good example is the window- covering manufacturer that didn't think comprehensive claims management was a crazy idea. In two years it cut annual damage claim volume from more than $600,000 to less than $100,000.

Wow! When you factor in soft-dollar costs, and the preservation of customer goodwill, the real savings exceed $1 million. And that savings is repeated year in, year out. Can you do the same thing?

Yes, you can.

This isn't a joke; it's serious business. An old joke asks, "What's the easiest way to be a millionaire?" The answer: "First, get a million dollars." So what's the easiest way to manage your claims? First, get knowledge. Track your shipments, track your damage, track the location of damage, log the reasons for the damage—build a database.

Almost without exception, winners of the freight claim wars have bought or built an information gathering and management system that helps them identify the root causes of their claims. In some cases, the cause is a problem carrier, or a particular lane the carrier services; in others it's bad packaging, a poorly designed product, or both; occasionally it's even a problem distribution center or a problem customer.

The following real-life examples illustrate how a good knowledge capture and analysis system applied to claims management can save time, help mitigate and prevent loss, and keep you from hitting the aspirin bottle.

Example 1: Using knowledge power with your carriers. Your claims management system should let you mine your knowledge base for all types of carrier data. You should be able to extract specific carrier information and identify which carrier treats your freight best, which treats it worst, and every carrier in between.

If a particular carrier delivers to multiple regions, then you want to be able to scorecard each region or lane. If it's a national carrier interlining with a regional one, you want to be able to monitor the secondary carrier's performance.

With this knowledge, you'll be able to do a lot to drive down claims and costs. First, you've compiled data you can share with problem carriers and use as a basis for improvement. And because you've got facts, you're no longer working from your gut. You're not telling carriers that you feel they're doing a bad job; you're telling them that you know they're doing a bad job.

Now you can look carriers in the eye and ask, "How will you fix the problem?" Then you hold them accountable for their answers.

Suppose a carrier provides stellar service to all but one region. If it can't fix the problem in that section of the trading area, you may decide to keep shipping with that carrier everywhere except in that particular vicinity. Leverage the good and shed the bad.

When your best carrier wants to raise your freight rates you may not like it but you'll know that keeping this carrier, even with a cost increase, is actually saving money and customer goodwill because the claim ratio is so low. On the other hand, when problem carriers want to increase your rates, you'll have the ammunition to shoot them down.

Example 2: Using knowledge power on your production line. Because the information management system you purchase or develop will track freight claims by SKU, you'll know if one product gets damaged significantly more than others. From that you can drill down, investigate, and see if it's the product, the packaging, or something else entirely.

One claims manager saw a particular product's damages bloom—a product that previously had the same damage ratio as his other merchandise. He found out that his marketing department had changed the packaging to save a few pennies.

Because this quickly rising damage trend was spotted early and nipped in the bud by returning to the old packaging, the claims manager saved his customer service department hundreds of calls. He saved his claims clerks hours of labor. He saved his marketing department from embarrassment. And most importantly, he preserved a healthy chunk of equity in the form of customer goodwill.

Example 3: Using knowledge power at your distribution centers. If your business operates with multiple distribution centers or subsidiary companies you want to know what's going on at each location in the same depth that you know what's going on with your transportation vendors or products. Because you can see what's happening at every location generating a claim, you'll spot damage trends before they spin out of control.

Maybe concealed damage claims are increasing wildly when the shipment originates from a particular DC. By having the operations manager at the errant DC pay special attention to the packaging and shipping process, you discover that the quality control manager has been promoted out of the department and the new manager's standards leave a lot to be desired. And a lot of money on the table. And a lot of customer and carrier angst.

After giving the new quality control manager a day or two of training, your concealed damage problem disappears.

Example 4: Using knowledge power with your customers. One business manager says, "the customer is always right," then wisely adds, "and I have the right to choose my customer."

Unfortunately, problem customers can be the root cause of damage claims. With the right information gathering and reporting system though, it will be as easy to root these customers out as it is to identify problem carriers and DCs.

Because an information management system puts the facts at your fingertips, you'll have an easier time convincing your sales team (who don't feel your pain) that there's trouble in paradise. Again, because you know what's going on all the way to the end of the supply chain, you'll be in the driver's seat when it comes to managing this class of freight damage, or possibly theft.

While rehabilitating the customer is the goal, you've got solid reasons to let this customer find another supplier if the goal isn't achievable.

Build it, or buy it, but do it now. The root word of knowledge is know. How will you ever really know what is causing your freight damage claims, and the best way to mitigate those claims, if you don't have a way to collect, catalog, and analyze your data? The answer is you won't truly know, you'll just guess.

That guess can mean you may favor a mediocre carrier over an A-rated one, or alienate your best carrier when it is actually your company that has a problem at a DC or with packaging. A guess can mean that instead of damage claims going down, they go up.

The obvious solution, and the opportunity you have, is to reap the power of an actionable database that contains all your freight-related knowledge. If your company has the programming expertise, the commitment to support an in-house application, and the time to develop it, building your own solution may be a viable choice.

But if your IT department is stretched thin, budgets are tight, and the year-after-year commitment needed to support a claims management system isn't there, you should buy or subscribe to one. Not only will you avoid burdening your IT department, but you can be up and running almost immediately. There's no latency and winning or preventing just one claim can offset the expense.

When it comes to freight damage claims, knowledge is power. Don't wait another minute before you put that kind of power to work for your business.

Digital Editions

August 2014 Cover

Full Digital Issue

August 2014

(86 pages • 13.21 MB PDF)

2014 Logistics Planner Cover

Digital Edition

2014 Logistics Planner

(162 pages • 23.2 MB PDF)

Utilities and Site Selection: Power Players Cover

Digital Edition

Utilities and Site Selection: Power Players

(8 pages • 1.24 MB PDF)