Gold Mining: Unearthing the Value in Freight Audit and Payment Services
No longer a simple accounting function, freight audit and payment services give shippers access to financial data they can dig into for money-saving insights.
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Freight audit and payment services have evolved beyond their original function of verifying, correcting, and paying freight bills. As logistics operations become more reliant on data, many shippers now view payment data as a gold mine of insight about their businesses.
Freight audit and payment providers are continually introducing new capabilities in leveraging data to solve shippers' business challenges. For some shippers, the extra help is essential—especially if resources are tight. And some in-house staff may not have the expertise to manage freight payment operations, says Harold B. Friedman, senior vice president, global corporate development, at logistics service provider Data2Logistics, based in Fort Meyers, Fla.
At the same time, managing transportation has become more data-driven. As a result, shippers expect more from their freight audit and payment providers.
"Companies are looking for ways to meet the challenges of today's complex supply chain environment," says Friedman. "They want actionable information and analysis, support in carrier negotiations, and insight into market best practices and industry benchmarks."
Shippers are also looking to level the playing field in carrier contract negotiations. "Historically, carriers have known much more about their business than shippers, and that gave them an unfair advantage," says Friedman. "We help shippers see how carriers are looking at their business, and aid in network optimization and day-to-day transportation decisions."
With fewer resources, tighter budgets, and higher expectations, shippers are relying on freight audit and payment providers for professional services, as well. For example, CTSI-Global, a supply chain management and technology provider in Memphis, Tenn., upgraded its staff and reporting tools to meet shipper demand for analytics-based cost-reduction strategies.
Shippers also have asked Fortigo, an Austin, Texas-based logistics IT services provider, to capture more data elements—even at the item level—and cross-reference them with other data elements to calculate total landing or total manufacturing costs, according to George Kontoravdis, Fortigo's president.
Shippers also want more frequent attention—processing freight bills daily instead of weekly to accelerate payments and comply with carrier agreements—and a flexible service delivery model so they can access data and reporting tools from tablets and smartphones.
These shipper expectations have transformed freight audit and payment services. "Rate audits used to just deliver savings and a few reports," says Keith Snavely, senior vice president, sales and marketing for nVision Global, a McDonough, Ga.-based provider of global freight audit, payment, and logistics management software and services. "While those results are certainly important, the main focus now is creating a central data warehouse that allows shippers to better manage their global supply chain."
At nVision Global, for example, service expansion has included performing freight audit and payment on a global scale, as well as providing data warehousing along with data normalization and cleansing. The company also offers supply chain and procurement services, and least-cost carrier applications.
"Shippers can now take advantage of a host of products and services beyond traditional freight audit and payment," says Snavely. "For example, we're expanding our online analytical tools, as well as some of our supply chain offerings, such as global procurement services. We also developed a new supply chain services group that provides control tower and transportation management capabilities."
The types of assistance shippers require vary widely. For TTi Floorcare North America of Glenwillow, Ohio, working with a freight audit and payment provider that can offer capabilities such as consolidated reporting is a top priority. In March 2013, the vacuum cleaner manufacturer—maker of Dirt Devil, Royal, and Hoover products—engaged Cleveland, Ohio-based CT Logistics for general audit services, as well as the data and tools to help with budgeting, planning, and evaluating carriers.
"We were looking for a provider that can offer cost savings, accuracy, and a personal touch—a dedicated rep who pays our bills and understands our account," says Evan Terhar, transportation director for TTi Floorcare.
"CT Logistics' FreitRater reporting tool has been extremely helpful," he adds. TTi Floorcare is currently adding international freight invoices to FreitRater.
"When all our freight is integrated into one reporting tool, we'll combine that data with information from our transportation management system for comparison," Terhar says.
Intersecting with TMS
As TTi Floorcare's experience shows, freight audit and payment intersects with transportation management systems (TMS) in a number of ways. In fact, some freight audit and payment providers also offer TMS as part of their services. But while TMS solutions are becoming increasingly dynamic, providers caution that they can't replicate what a freight audit and payment firm can offer.
"Many TMS solutions don't provide a full audit function—especially not on a global scale," says Snavely. "A TMS traditionally doesn't capture the vast amounts of data a freight audit and payment provider does. And managing freight audit and payment with a TMS carries labor costs for developers and operators."
"Using the same provider for both freight audit and payment and TMS is ideal," says Brian Scott, senior vice president, global sales, at CTSI-Global. "This approach means shipment data is entered into our system as soon as the freight ships, so the customer doesn't have to send it to another company for freight payment."
Investing for Innovation
In addition to offering TMS, freight payment and audit providers are continually investing in new technology to meet the need for granularity.
"We have to keep up with technological advancements in shippers' systems, as well as within the freight audit and payment industry," says Tom Zygmunt, manager of marketing at Cass Information Systems, a transportation business intelligence provider in Bridgeton, Mo.
CT Logistics is enhancing its technical capabilities with the Logistics Intelligence Optimization Network (LION). Launched in spring 2013, LION works in conjunction with CT Logistics' FreitRater to provide shippers with complete supply chain visibility to international freight, and enable intelligent decisions such as selecting carriers for specific routes, and determining whether to renegotiate contracts or open them up to bid.
"LION facilitates supply chain modeling, as well as planning and execution," says Allan J. Miner, president of CT Logistics.
Early LION users have seen return on investment within 90 days. "Shippers can view their transportation costs, and determine what they're managing well and what is out of tolerance," Miner says. "They can then deploy better solutions and policies to control those costs."
Compare and Contrast
With so much carrier rate data housed within their systems, freight audit and payment providers are ideally situated to offer benchmark data to help shippers understand and negotiate rates.
Minneapolis, Minn.-based financial services company U.S. Bank is exploring the potential of offering more actionable information and benchmarks to help shippers compare themselves to others in their industry or with similar freight patterns.
Within global companies, different divisions often operate markedly different supply chains, and are better off comparing their freight spend with like shippers than with other internal divisions. That's just one example of how technology refinements can help mine more value out of freight data.
"We work with customers to develop data analysis tools that provide greater insights into their transportation spend," says Kimberle Kennedy, senior vice president, transportation payments, U.S. Bank Freight Payment, a transportation solutions division of U.S. Bank. "Our goal is to help them find meaning in the numbers so they can make better business decisions."
Shippers are requesting an ever-broadening array of data from freight audit and payment providers. For example, sustainability is a corporate-wide priority at IT storage hardware solutions company EMC Corp., based in Hopkinton, Mass. The company relies on Data2Logistics, its freight audit and payment provider, to furnish data such as carrier mileage, and help ensure that only SmartWay-certified carriers transport its freight.
"Data2Logistics has been very helpful as we expand its freight audit and payment services to our new international manufacturing facility," says Kevin McCay, project manager, EMC Corp. "We get quality data, accessible 24/7 via online tools such as Data2Inform, which allows us to view strategic reports."
The Power of Concentrating Services
As shipper requirements increase, freight audit and payment service providers are adding an array of capabilities to satisfy customers and differentiate their businesses. In addition to delivering benefits associated with each particular service line, concentrating several services with one provider multiplies the advantages.
For example, shippers can use U.S. Bank's pre-audit and invoice processing solution along with supply chain financing to improve payment term management. When shippers choose supply chain financing, U.S. Bank accepts, audits, and pays the invoice immediately on approval, but the shipper doesn't have to pay U.S. Bank for at least 30 days. The carrier improves its day sales outstanding (DSO), and the shipper gains an advantage in days payable outstanding (DPO)—as well as enhancing its value to the carrier through quick payment and fully electronic data.
Working with shippers who choose this type of supply chain financing also benefits carriers by making funds available for investments that support their business, such as new equipment purchases.
"It's an alternative to traditional business funding, such as a working capital line of credit," says U.S. Bank's Kennedy. Carriers consider this approach depending on the way they manage their cash, and how they fund their businesses.
CT Logistics takes a similar position. In addition to LION, the company provides RatePort, a collaborative tool that enables shippers to work with carriers to negotiate contracts, discounts, or delivered costs. That data feeds into the company's FreitRater tool, so that when those shipments occur, the costs are already in the system. FreitRater's execution servicethen calculates the accruals andcostallocations down to the SKU level.
To support that broad array of services, CT Logistics has expanded its IT staff, professional global capabilities, services, and software offerings. The company is also creating mobile versions of all its applications.
Fortigo is also seeking increased integration. "We're developing a closed-loop audit model," says Kontoravdis. "In addition to receiving and processing freight bills, and feeding them to our customers' systems, we also want active carrier participation. Carrier engagement ensures we provide them with timely updates and get their input via regular aging reports. That allows us to verify that the process flows correctly, improve accuracy, detect issues as they occur, and establish a timely payment structure."
A3 Freight Payment, based in Memphis, Tenn., is one of a few freight payment and audit providers using a proactive resolution model with carriers. "We do not short pay invoices," says Ross Harris, A3's CEO. "If we identify an invoice discrepancy, client-dedicated resources get all parties to collaborate to resolve errors prior to settlement.
"This process secures agreement as to the root cause of the error and the steps necessary to permanently correct it," Harris says.
Once corrected, the billing and reporting data are accurate from that point forward. Typically, about 90 percent of errors can be eliminated in the first six months of a carrier contract.
An increasing number of shippers are seeking to apply the services of freight audit and payment providers to shipments between non-U.S. locations, creating a new set of challenges. While countries and markets may differ in metrics, languages, currencies, time zones, measure of weights, distances, and compliance requirements, some fundamental differences can also be difficult to overcome. For example, in some low-wage environments, it's inexpensive to process freight invoices in-house, so outsourcing may not be cost-effective.
"Other countries may have simpler rate structures than the United States, and in some emerging economies, contracts are not common—handshake agreements are more typical," says Harris. "Other jurisdictions may also have tax compliance issues and rules related to inter-country chargebacks, and the presence of a third party can complicate these issues.
"We've been able to develop solutions for our clients that create visibility to global spend, and provide locations with tools to maintain and manage the payables process on the ground," he adds.
Freight audit and payment services are well-established in the United States, but are a newer concept in many markets across the world—although the discipline is catching on among global firms.
"In 2012, our biggest growth areas were Europe and Asia, and many current U.S. customers have started adding service for countries such as Korea, China, and Brazil, including moves within the country and region," says CTSI-Global's Scott.
Partners for the Long Haul
Arvato North America, an international outsourcing service provider with U.S. headquarters in Weaverville, N.C., has a long, trusting relationship with its freight payment and audit service company, CTSI-Global. In fact, the partnership has evolved over 16 years, and CTSI-Global now provides TMS and track-and-trace functions, and handles many reporting and analytics functions Arvato formerly performed in-house.
"Our reserves are slim, so we use CTSI-Global whenever we can," says Tom Brissenden, senior manager, logistics, for Arvato. "CTSI-Global's staff knows this business."
Most shippers engage freight audit and payment providers intending to establish a long-term partnership like the one Arvato maintains with CTSI-Global. To ensure a suitable match, it's critical to thoroughly vet potential partners before embarking on a business relationship.
When choosing a freight audit and payment provider, research all the companies you are considering. Start with the following points, and ask plenty of questions (see sidebar).
- Try the tools. Don't just look at analytics and reporting tools—use them and get a feel for how they work. Ask references how well the tools meet their needs.
- Ensure bonding. Ask if the organization holds fidelity bond coverage, a type of business insurance that protects employers against financial losses caused by fraudulent or dishonest employee behavior.
- Understand pricing. "If you choose a provider offering fees 50 to 60 percent lower than every other company, you are taking a risk," says nVision's Snavely. "You are placing a bet on your company's funds." Also look for red flags such as separate fees for generating reports, imaging, and electronically transfering funds.
- Verify international expertise. Ask about the provider's experience in the countries where you do business, and how it handles language differences.
- Watch out for co-mingling. Ensure the provider maintains dedicated accounts for each shipper, and does not co-mingle shipper funds.
- Look deep. Understand the provider's processes and controls, and how they are organized.
- Consult carriers. Providers are not the only information source. Consider approaching carriers for their views—you may be able to find out which providers pay on time, whose processes are best at resolving discrepancies, and who helps carriers find and correct the source of the problem to head off future issues. Even with long-term freight payment and audit relationships in place, it's a good idea to periodically pose these questions to carriers.
Once you've chosen a provider, the following steps will help ensure a successful experience:
- Run a pilot. This test lets both sides know what they're working with, to ensure there is a fit. "Setting up a freight audit is time-consuming and requires commitment from the shipper," says Fortigo's Kontoravdis. "If you aren't currently using freight audit and payment services, a small pilot project would be a reality check about the type of effort required." For example, sometimes new users believe they have carrier contracts in place, but when they start preparing for audit, they discover the contracts have expired, requiring new negotiations.
- Ensure good project management. Managers must understand current processes, such as which divisions operate in a distributed model and which are centralized.
- Perform field ROI analysis. "The pricing model you pick for the freight audit provider is tied to the ROI you realize," Kontoravdis explains. "Sometimes, a transaction-based model is better. Other times, gainsharing is better. You don't know until you get down to the details."
- Clearly define the scope and deliverables. Global shippers, in particular, need to agree on what will happen in each phase of the project. "They also need to understand the differences between freight audit and freight payment, which are not always immediately clear," says Kontoravdis. "It might make sense for the shipper to pay the bills because of internal controls, processes, or guidelines."
- Ask for carrier report cards. Data2Logistics issues quarterly report cards detailing each carrier's performance and compliance. "You can see who is delivering on time, whether they provide proper documentation, and if they are billing accurately," notes Friedman.
- Use providers for detailed requests for proposal (RFPs). Data2Logistics works extensively with clients to create comprehensive RFPs. "These documents are key to understanding carriers' capabilities, and ensure they're bidding on lanes they can handle," says Friedman. "A lot more work goes into good RFPs than people think. We encourage shippers to provide detailed information about their shipping requirements, and to also drill down into carrier capabilities. Choosing a carrier involves more than just price. The ability to provide service performance is equally important."
- Get buy-in for global expansion. Because freight audit and payment is a fairly new discipline to those outside North America, make sure you have true buy-in from non-U.S. divisions before expanding those services to them. "A small location in Europe may not receive the full benefit of freight audit and payment, but having all the company's shipment data in a global data warehouse does serve the greater good of the business," says Snavely.
Once considered an accounting —rather than supply chain—function, freight audit and payment has evolved considerably to become a key part of many shippers' accounting, logistics, and IT operations. As such, it's critical for shippers to choose partners carefully and fully understand—and take advantage of—all the capabilities they now provide.