Handling global freight cost (3)
Published: Mar 30, 2011
This is the final instalment of a three-part series with Dr. Torsten Mallée, general manager, AEB (Asia Pacific) Pte Ltd on global freight cost visibility. In this instalment he discusses the long-term benefits that can be achieved by using IT solutions to improve freight cost visibility, including providing real-life examples. AEB delivers IT solutions and services for supply chain and global trade management.
With the complex nature of freight cost calculation, it is no surprise that companies overspend on freight. Fuel surcharges, weight, space taken up, delivery service type and the type of transportation used are just some of the factors that need to be taken into consideration when determining freight costs; and that is just from one service provider. A company always has to get multiple quotes from different service providers to find the best possible transport option. When manually dealing with large quantities of shipments, this is not feasible. It creates a huge drain on logistics teams, as they spend their time calculating freight rates from existing providers and checking invoices from forwarders when they should be optimising business with existing providers, sourcing for new providers and improving business processes. Companies are beginning to see the value of adopting technology to manage their freight costs, remove human errors and receive much needed visibility on freight costs in the process.
Less is More
Currently, freight rate sheets are often all over the place, hardcopies in the drawer, a spreadsheet in someone's email etc. The logistics team has to gather all the data, run the miles, add the relevant charges and then calculate the freight costs. When checking invoices, they have to repeat the process again, using the tables provided by the freight forwarder and ensuring that all the invoice items match line by line without error. With multiple truckloads, this process becomes extremely time-consuming and draining. A logistics team will find that with automation, these tasks can be completed quickly and efficiently, resulting in considerable time savings and cost reductions as human errors are removed from the equation.
In our experience, introducing such a system is extremely beneficial, keeping logistics teams lean and allowing them to focus on value-adding services to the business. One of our customers had a seven-person team to calculate freight costs and complete the documentation. After implementing the freight management system, their logistics team was reduced to just two persons. They received a full ROI within the first year after implementation. Another client found that after automation they required just one person to check all the freight bills from 18 separate offices around the world.
Bringing Information Symmetry
An automated system can take a complete set of quotes, analyse the various methods of calculation, cost components (e.g. weight or volume, distance in road kilometres or tariffs, zone and freight-dependent costs, service types) and give the user complete visibility on the options available and the respective costs involved; all with the click of a few buttons. It gives the user the ability to quickly compare and analyse various scenarios related to the freight transportation (e.g. air vs. sea; freight forwarder A vs freight forwarder B). Additionally, it provides them with better control and visibility on freight costs and ancillary charges drilled down to SKU- level, allowing them to quickly and precisely automate the reallocation of freight costs to customers, suppliers or internal cost centres. In this way, companies gain valuable business intelligence and transparency, allowing them to stay ahead of their competitors.
Companies are able to better determine the landed costs of goods and thus have better transparency on pricings. With this data now available, a better forecasting of freight costs and necessary accruals is enabled. Finally all these parameters in the given detail level build the basis for dashboard reports providing virtually all the required information on shipments and related costs, whether it is spending per trade-lane or client, per product and destination, per forwarder and service type etc. providing the perfect basis for quick analyses and an ideal preparation for more successful negotiations with the forwarders. Clients that have adopted these automated systems do not want to go without it anymore - from a tedious, labour intensive and error-prone process with no or little value add to lean and accurate operations running in the background and providing them with all details to improve their business.
Research has indicated that about 8% of all freight invoice amounts are not invoiced correctly. Since it is too time-consuming to check each and every invoice line by line, logistics teams tend to perform random invoice checks, often missing many opportunities to correct costs from incorrect invoices. With automation, immediately savings are realised through the elimination of random, manual checks. Now, every single cost component is examined line by line without error, at a much faster rate than previously possible manually. Since a large percentage of invoices have discrepancies, it would not be economical to settle each and every discrepancy. Therefore, a discrepancy tolerance can be implemented in order to highlight only discrepancies of substantial values, allowing the logistics team to resolve the issue with the forwarders. A customer of ours was able to reduce invoice-checking time from weeks to just two days after implementing an automated solution.
Conclusion - Just the beginning
The goal of any freight management solution is cost-effectiveness, which is a by-product of achieving transparency in the jungle of carrier cost and service structure charges. It also saves time for logistics teams, gives them a better negotiation position with freight forwarders and an improved agility and responsiveness in operations with better business intelligence. However, freight management is just one aspect of the entire supply chain. Other areas of logistics execution such as transport management, warehouse management, risk management etc are also opportunities to reduce costs, improve visibility and gain business intelligence. A state-of-the-art freight management solution can simply be the first step to further optimising the supply chain and keeping a business ahead of its competitors.
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