Freight Payment Outsourcing: Getting Finances in Ship Shape
Consider this: Because of administrative overhead, it costs large companies about $11 to pay one freight invoice. For a company with 1,000 carrier invoices a month, that's $11,000. But if a third-party freight payment/auditing firm processes these invoices, companies pay just 5 percent to 10 percent of this benchmark cost per bill.
Companies that outsource their freight payment and auditing activities can save anywhere from 2 percent to 5 percent of their total freight bill by catching inaccurate charges or duplicate payments.
Molex Incorporated: Buried No More
Molex Incoporated is one of the world's largest manufacturers of electronic, electrical, and fiber optic interconnection products and systems; switches; and integrated products, supplying companies in the automotive, computer, telecommunications, and industrial sectors.
For the past 10 years, Molex has used Continental Traffic Service Inc. (CTSI), Memphis, Tenn., to handle its freight payment and auditing responsibilities.
CTSI's solution offers a database query builder that Molex uses for transportation decision making.
"With our old system, if I needed to run a query summarizing carrier activity year to date, and I wanted to drill down into detail on a particular carrier, I had to run a new query to get to that information," says Jim Kicher, Molex's Americas region logistics manager. "It was a cumbersome and time-consuming process. Using the CTSI system, I get the drill-down details I need." The system is also able to export the information into Excel and other formats.
Any Molex user can establish key performance indicators (KPIs), then set up a series of graphs to run automatically, comparing transportation information such as month-to-month or year-to-year data, cost per pound, number of shipments, and accessorial charges.
"I can look at charts that show our domestic freight cost per pound by month this year compared to previous years," Kicher says. "If I see a spike in one month, I can click on that bar in the graph and the system automatically gives me all the details, down to the pro number level, to look at origin, destination, weight, and carrier. The level of detail is only limited by the information we ask CTSI to capture."
Molex and CTSI are also in the process of setting up a claims management tool. This tool will allow Molex to have a single report showing shipping and claims activities when it meets with carriers.
"I can say to the carrier, for example, 'You handled 5,000 shipments, we had 20 claims, and we settled 18,'" Kicher says. "I can break down the claims by location to see that we're having a problem isolated to inbound shipments to a specific facility. We can drill down to the source of the damage to figure out the cause.
"We had one supplier, for instance, whose packaging wasn't adequate to protect the material," he continues. "We isolated the cause, and went back to the supplier to work through the issue."
A number of Molex's carriers transmit their invoices electronically, via EDI, to CTSI. "That has been a big benefit," Kicher says.
And a new process where Molex's truckload carriers key their shipments in CTSI's system as they occur is also in the works. This information feeds CTSI's audit and payment process.
"Carriers don't have to create paper invoices and wait for them to be delivered, hand processed, and paid," Kicher explains. "By managing these steps electronically, we can reduce the payment process by up to 10 days. The carriers are satisfied, and this improves our relationships with them."
Finally, CTSI offers another tool that helps Molex increase efficiency -- electronic freight bill resolution (EFBR). Any transaction that falls outside Molex's criteria for rates, address validation, or general ledger cost account coding, among others, automatically goes into the EFBR system where it remains pending until it is reviewed.
"Every day we review the EFBR folder. CTSI scans the documents in question so we can look at the actual invoice and backup paperwork and approve or disapprove payment. In the past, these exceptions were handled manually, by mail," Kicher explains.
From Mountains to Molehills
Overall, outsourcing its freight audit/payment activities has been a boon to the company, says Kicher.
"We used to do a lot of manual paperwork processing to pay freight invoices," he says. "The mountains of paperwork would grow until we had to take the work home over the weekend and flush it all through the system at once. This caused sudden spikes in freight payments, which was a serious concern to our finance department.
"Today," he says, "because we're being proactive and managing our freight information, we no longer have peaks and valleys in our freight payment processing. Now, if freight bill payments peak, it's because the business peaked, not the paperwork. If we didn't have these tools, we'd still be buried under paper." ...
The end result is simple: more efficiently managed supply chains.
selection from Inbound Logistics feature "Freight Payment Outsourcing: Getting Finances in Ship Shape" by Lisa Harrington, September 2005