Many manufacturers and retailers throughout North America spend millions of dollars a year on freight transportation. Freight costs can represent between 1 and 10 percent of a company’s operating revenue, one of the largest cost items. They are often treated as a necessary evil. From time to time a shipper may try out a new mode of transport, a new carrier or conduct a freight bid. Other than that, freight programs tend to remain fairly static from year to year.
During our years of consulting with shippers all over North America, we have observed a pattern of Best Practices that elevate certain shippers and companies above their peers. Employing these Best Practices allows these companies to reduce freight costs and improve profitability. One of the best ways to find out where a company stands in the area of Freight Management is to conduct a Transportation Audit. It is our view that shippers with a freight budget in excess of $1 million should periodically conduct an independent audit of their freight programs. Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well. You might be amazed at what you find.
Note that a Transportation Audit is far more than a freight rate audit that seeks to find situations where a shipper is being overcharged or incorrectly charged by transport comanies. A Transportation Audit takes a holistic look at a company’s entire freight management program. The following items are typically included in one of these exercises.
Freight Data Management – Does the company have the quality and quantity of the data necessary to effectively manage freight transportation?
Knowledge – Does the shipper possess an understanding of the various disciplines (e.g. pricing, modes, carriers, customs, laws etc.) associated with freight transportation?
Organization – Is there a freight transportation leader within the organization, where does freight transportation fit within the company and how efficiently and effectively is it led and managed?
Freight Spend Management – Is there a business plan that incorporates freight activities, is there a detailed freight transportation budget and how well is the budget managed (e.g. exception reports and follow up)?
Process – Does the company employ Best in Class processes to drive its freight transportation operations? What are the links between inbound and outbound freight?
Technology – Is Technology used to optimize the efficiency of key facets of transportation? Is it used for planning, execution and management?
Strategy – Is the company’s Transportation Strategy properly aligned with the company’s Business Strategy?
Key Performance Indicators and Reports – Does the company have relevant KPIs to manage freight transportation and does it have Dashboards and Scorecards that provide alerts and drive performance?
Carrier-Friendliness – In this era of tight capacity, does the company have strong relationships and collaborative business practices with its core carriers?
Operational Excellence – Are the basic “blocking and tackling” aspects of freight management (e.g. packaging, loading, unloading, private fleet operation) performed at a high level? Does the company’s supply chain provide competitive differentiation in the market?
To learn more about what it takes to be a Best in Class shipper and to gain an understanding of the components of a Transportation Audit, stay tuned for the upcoming blogs in this series.
To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).