SCM optimization

Freight charges: From costs to opportunities

Outsourcing and automating freight cost management harbors great benefits – for both shippers and their customers. Find out why and what to look for.

In 2016, the economic and political uncertainties have contributed to higher carrying costs of inventory. This increased the pressure on logistics operations to reduce expenses and put a stop to eroding profits. I believe that this trend will continue for some time. Having said that, I am also cautiously optimistic about what this New Year will bring.

Forward-thinking companies are gaining strategic advantage over competitors by capitalizing on technology innovations and using analytical tools to achieve visibility in their supply chains. However, few companies have a system in place that can accurately and comprehensively manage logistics data pools. An example for this is the area of freight cost management.

The lack of efficient technology support prevents businesses from taking full advantage of logistics costs optimization strategies. 

How the leaders do it: an example

For companies that have a good system in place, on the other hand, the cost savings they generate deliver benefits for both: their own business and their customers as well. The online supermarket RedMart in Singapore is one of those companies that are very successful in this area.

The company promotes discounts for specified delivery time slots to consolidate shipments in certain areas and save on freight costs. And they pass on these cost savings to their customers, making it indeed a win-win situation for both themselves and their customers.

The complexity of today’s supply chains with numerous stages, partners, and wide-spread geographical locations has created a very scattered and opaque environment for businesses and their stakeholders. Traditional providers of freight cost services are not able to provide businesses with real-time visibility for managing these transparency issues. As a result, timely reactions to real-life developments are not possible – and a new and more comprehensive approach is needed.

This is where my optimism comes in. With continued spotlight on supply chain efficiency as a competitive factor, we believe that in 2017, businesses will become increasingly aware of the potential in the area of freight cost management. This includes scrutinizing current practices, processes, and existing systems that no longer provide them with the competitive edge they need. Companies like RedMart lead by example and raise the bar on expected standards.

Challenges in freight auditing

Transport charges can represent up to 10 percent of a company’s total expense. Cutting freight costs is an excellent way for companies to generate savings. However, managing these costs, and freight invoices in particular, is often a tedious task.

Aside from the sheer mass of invoices that need to be processed, the rates and tariff structures of transport providers are highly complex, too. But the fact that on average about 30 percent of freight invoices contain errors, additionally emphasizes how worthwhile accurate freight cost auditing really is.

Especially in Asia, many businesses currently do not have a system in place to comprehensively manage the logistics data pool and accurately verify freight invoices. While a number of companies are using service providers for freight auditing services, the processes might still not be automated.

It’s often done manually, which requires expertise and is highly time-consuming. As such, it relieves companies of the burden to manage freight invoice auditing, but it does not add any additional value to their business or that of their customers. In the big picture, automation is crucial.

Digital transformation through outsourcing

In December 2016, NTT Communications Corporation published the report “The Digital Silk Road to Success”. It states that 94 percent of organizations in Singapore, Hong Kong, and China have plans to deploy disruptive technologies – IoT and big data analytics – to accelerate digital transformation and boost competitiveness.

The report further reveals that the success of businesses in retail, manufacturing, and wholesale relies heavily on efficient supply chain ecosystems. Within these ecosystems, the ability to trace and visualize the bilateral flow of goods, information, and cash throughout the value chain at any given moment is becoming more critical than ever.

To transform their organizations digitally, over 60 percent of respondents said that they would opt for outsourcing such transformation projects. This is based on the aim to reduce deployment time and cost, and benefit from domain expertise of suppliers.

Supply chain managers need more: automation benefits

This study perfectly mirrors our own experience in Asia. Listening to our existing customers as well as prospects, we found that many companies lack the manpower and skillsets for freight cost management. But increasingly recognizing the importance of this area to keep a competitive edge, they are seriously considering the option of outsourcing.

However, only when such outsourced services are automated can they deliver the full benefit companies are looking for. It’s not just about getting rid of the time-consuming tasks and savings freight costs.

Supply chain managers are looking for added value to differentiate themselves from the competition. They also need, for example, access to the comprehensive pool of logistics data for analyses, ad hoc reports, status alerts, and management dashboards.

KPIs, performance analyses, and other reports empower them to monitor service levels and the performance of their logistics service providers for continuous optimization. More importantly even, by achieving transparency in their supply chains, businesses are able to launch real-life data-driven decision-making and planning. The benefits are enormous.

Cycle
Cycle

Driving profitability via digital freight management tools

By equipping businesses with data analytics, resulting real-time visibility also lays the foundation for efficiently managing freight costs. This not only includes efficient invoice control but also taking informed operational decisions on a daily basis. Once all transport partners’ service levels and tariffs are transparent and easy to compare, changing carriers to align with financial goals is easily possible on the operational level.

Most businesses examine their transport costs only where there is a variance without realizing that the daily choices they make have a direct impact on their business profitability, too. Another example is real-time visibility over freight volumes which enables companies to consolidate their shipments to achieve better rates. And transparency over carrier performance and discrepancies provide an excellent basis for carrier negotiations on future contracts.

This drives operational performance and cost savings – both of which also deliver direct value to customers. Once the manual tasks of freight management have been automated, businesses can focus on further value-adding activities – for their own business and that of their customers – without sacrificing time, money, or quality.

In the upcoming months, we expect more and more discussions on this topic within the logistics industry. What is the current situation in freight cost management in your organization? We invite you to join the dialogue and very much look forward to hearing from you in 2017. Please send me your comments here in this blog – or contact me via LinkedIn.