In the two previous blogs, the focus was on the creation of a freight transportation procurement strategy and a process to follow to successfully implement the strategy. This blog will provide an overview of the procedures that need to be put in place to ensure the savings achieved through the carrier selection process are realized.

One of the deliverables from a freight bid or carrier selection initiative is the creation of a routing guide or shipping guide. The guide identifies your primary and backup carriers on every lane. Some companies use paper route guides while others that have a transportation management software system may have an electronic version of the guide. Whether you operate in a manual or electronic mode, the value of the route guides is to ensure that carriers are selected on the basis of criteria that are of importance to your company. Typically they will be some combination of rates, mode, capacity, type of equipment, transit times and customer service.

As you move into the implementation phase, you begin to encounter hurdles that may be caused either by your carriers or your own personnel. Some carriers may over commit during the procurement process and be unable to deliver. In other cases, a carrier may find more profitable freight and allocate more of their equipment to another customer. This can result in load refusals or service failures.

On the shipper side, the roadblocks are of a different nature. In a multi plant environment, the local dispatcher in a particular plant may have a personal relationship with the driver on that route. The previous incumbent’s sales personnel may have built a strong bond with the Traffic Manager. This may result in shipments or loads going to carriers that do not rank on the top of your route guides.

It is precisely for these reasons that compliance tracking is so important. The precious expense dollars saved during the selection process can evaporate if there is a lack of oversight and continuous monitoring. Monthly tracking reports will not be adequate. By the time you identify the problem, you will have incurred too much “maverick spend.” Daily or weekly tracking reports are more effective.

Of course, simply producing reports without follow up action will not do the job. Someone must have the responsibility to challenge the use of carriers that do not rank near the top of the route guides.

In parallel with these activities, there is a need to monitor financial data, in particular freight cost expenses. Specifically, there is a need to verify (audit) that your carriers are charging the approved rates and surcharges. There is also a requirement to check to see if any additional (or accessorial) charges are being imposed. In many cases, these extra charges are a result of poor shipping or receiving practices (e.g. lack of scheduled carrier appointment times, excess waiting time etc.). In the case of small parcel shipments, accessorial charges can equal fifty percent of the freight costs.

The key is to track year/year variances in freight costs, accessorial costs and fuel surcharges on a lane by lane and carrier by carrier basis. These types of analyses, coupled with an ongoing route guide compliance process, will provide you with the tools to ensure your company derives the maximum benefits from its carrier selection and procurement exercise.

Clearly we are moving into a difficult economic environment for the balance of 2008 and into 2009. Job losses are escalating. Cost reduction is a strategy that is being implemented across North America and around the world. With freight costs being such a large percentage of revenues in many companies, a well planned freight cost procurement strategy, an effective implementation process and a strong compliance program can go a long way towards helping your company achieve maximum value for its freight transportation dollars.