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Freight Management Solutions Help You To Recapturing the Hidden Costs of Freight
Identifying and reducing the total freight cost is one of the simplest, most effective, direct impacts on a company’s profitability. Once a company has negotiated better rates among its preferred carriers there is an opportunity to carve out an additional 30-50% by identifying and recapturing the hidden costs of freight.
There are two main areas where most companies loose thousands of dollars every week as acceptable “sunk costs” in their operations. The first is found in carrier pricing variances, the second is in lost administrative time throughout an organization.
Optimize Carrier Selection with Freight Management Solutions
There are typically at least a 25% price differences in carrier’s rates for each shipment among a modest stable of carriers. Carriers have varying preferences regarding the type of shipment. Factors include;
• Number of pallets per shipment
• Weight
• Density (Space on the trailer vs. weight)
• Palletized freight vs. alternate or loose packaging
Each carrier prices according to their preferred mix of freight. The preferences will further vary by carrier for each shipment origin and destination (known as a shipping lane).
Even if carriers are identically discounted there are multitude of factors that determine each carrier’s price including:
• The distance from the carriers’ terminal
• Frequency of the lane
• Equipment availability
• Ability to backhaul
Knowing the preferred freight type and preferred lanes to select the best carrier can dramatically affect the cost as well as the service.
To rate and secure transit times for every shipment with all of your carriers is often unfeasible because of the enormous time investments required. An alternative was to develop freight buying strategies based around broad assumptions or generalizations that made incremental strides towards reducing freight cost variances. Several of the most common strategies designed to overcome the limits of rating each carrier for every shipment are listed below;
• Carrier Selection by Volume of shipment
• Carrier Selection by Region
• Carrier Selection by Discount %
These strategies recognized the variances that exist, but due to limited visibility, still leave money on the table. Full knowledge of each carrier’s price is the only way to optimize which carrier holds the best price and service for each and every shipment.
Freight Management Solutions Help You To Identify The Hidden Costs
Administering freight affects nearly every facet of a company’s operations. Most organizations categorize these efforts as the cost of doing business because they have never quantified the actual administrative cost per shipment.
The first step to identify the numerous touch points of freight through review of the personnel and their activities. Some common examples are listed below;
Executive Staff – Daily weekly reports detailing costs are often sought to determine customer pricing, minimum order quantities, and actual inventory levels. Other executive touch points include informational needs to establish additional production or warehousing facilities or simply to measure market penetration in various regions.
Purchasing agents - The purchasing agents are also often responsible for routing the inbound shipments. Buyers should secure rates from all their carriers and the rate of the supplier to evaluate the true total cost of materials to make the best selection.
Outside sales staff – Sales persons are often required to provide freight rate estimates for a complete cost to a client. Sales agents are also often called to track orders or settle damage claims from clients. The time spent on freight issues is time away from generating sales.
Customer service / inside sales staff – Customer service often face the same frontline issues as the outside sales people. Even simply tracking shipments typically requires a return phone call to the already anxious client once the information is retrieved.
Accounting staff – Controllers and accounting staff usually spend hours every week manually entering individual freight invoices into a financial system. When and if a billing error is detected the accounting personnel must attempt to identify and correct the issue or contact the freight manager to determine the issue and reengage the carriers staff to resolve the issue.
Dock Manager – Dock managers require insight as to what is coming in on what day and what needs to be staged to go out with which carrier. Often the dock managers are responsible for picking and packing the order and generating the shipping documents to conform with what was actually shipped versus what was ordered.
Freight Managers – As the nerve centers of any companies shipping operations freight managers are often the only means to obtain freight related information for any of the other personnel within an organization. This responsibility not only pulls the manager in several directions, but also directly affects the performance of the other personnel based on his/her availability.
When the various roles and their respective activities are identified a company can begin to measure the full impact freight has on an organization. Once the actual costs are quantified a solution is imperative to prevent the continued drain on profitability.
Many companies have recognized these hidden costs in the past and devised strategies to minimize Administrative time. Some of the more common tactics include;
• Reducing the number of carriers used
• Using a 3rd party logistics firm
• Ship Inbound via “best way”
All of these may provide an incremental decrease in administrative costs, but can severely add to the freight cost and quality of service.
Freight Management Solutions Help You To Capture The Savings
Identifying the pricing variances among carriers and reducing the administrative expenses relating to freight can be achieved through an effective freight management solution (FMS). There are several on the market, but finding the right solution for your organization is often a difficult task. There are several key elements to consider when evaluating Freight Revenue’s solution or any other FMS to find the ideal fit for each organization.
• Required Features
• User Seats
• Permissions and Accountability
• Carrier Communication
• Pricing
Required Features
Identifying the features required of an FMS is a key decision point. Companies should first identify the bottlenecks within each individual organization. FMS solutions are available with a vast array of features and companies should know what is needed and what is extra. Some FMS systems will try to automate the business logic as well as the administrative functions which generate twice the work once an exception arises. Most companies have a very capable people to make the business decisions relating to freight. Freight Revenue believes that a FMS is used most effectively to eliminate the redundant data entry, exchange critical information with carriers, and share that information across an organization on demand.
A good rule of thumb is to resolve 90% of your freight issues through the FMS. The remaining 10% likely consists of a myriad of exceptions and very difficult and costly to configure the FMS to accommodate for all the scenarios.
Other considerations are that the FMS solution is often a stand alone and does not share information with any other internal systems resulting in continued redundant data entry to generate the sales order, enter other information into the FMS, and enter the information again into an enterprise system or financial system for billing. Freight Revenue’s position is that the ability to exchange information electronically between office systems is critical to maximizing efficiencies. Each time personnel are required to manually re-enter data it drains the time away from their appointed task and introduces an opportunity for errors. Freight Revenue’s belief is that once information is entered it should never require re-entry through the entire life cycle of the order.
User Seats Licensing user seats is exactly counter to enabling all key personnel to gain visibility to freight information. Bottlenecks continue to affect the performance of the company if only a select few people have access to critical freight information.
Permissions and Accountability If an entire organization can access freight information Freight Revenue believes permissions ease of use and accountability are essential to the effective use of the FMS. Accountability for actions within the FMS is important to know who did what and when to resolve billing disputes or address internal operational issues. Freight Revenue took in to account that if non-freight specialists are using the FMS it must be simple in both navigation and wording with minimal need for extensive training. If systems are too complex they will simply not be used.
Communication
A key component to selecting a FMS is to know how the information is exchanged with carriers. Learn if the system uses a static database of a set group of carriers or will it electronically bridge directly to each of the client’s preferred carriers regardless of size or technical ability. This is critical because many companies using a static rating engine actually do not exchange any information directly with the carriers. This static system will often fail to account for transit times, fuel surcharges and other accessorials that will ultimately affect the actual freight rate. Freight Revenue captures a rate from the same computer that will generate a company’s invoice. Accuracy is paramount and the ideal FMS should be able to feed the complete shipment information directly into the carrier’s computer and capture transit times, accessorial charges, fuel surcharges, and even a quote ID directly from each carrier.
Other important factors to establish direct communications with carrier’s internal systems is to capture additional administrative savings in generating shipping documents, scheduling a pick-up, tracking inbound/outbound shipments, and communicating issues with shipments or invoices at the click of a mouse.
Most companies never realized the dollars lost everyday relating to carrier variances nor was the impact of administering freight ever truly quantified throughout an organization. There exists a clear method to recapture these hidden costs through an effective FMS. To those companies that recognize what they are loosing everyday and move quickly to correct it Freight Revenue Recovery of Miami can deliver increased profitability.
Contact us today for additional information on our Freight Management Solutions or to schedule a live web demonstration.
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