Freight expenditures typically run between one and ten percent of revenues in most manufacturers and distributors. There are a range of Best Practices that can be employed by shippers that wish to optimize the value derived from these expenditures.

The first Best Practice in Freight Spend Management is to create good quality data on freight expenditures. Please refer to the blog on Freight Data Management for Best Practices in this area. Good quality data serves several purposes.

• It allows companies to verify that they are paying the contracted rates for the service or services that were requested
• It helps monitor the effectiveness of a company’s supply chain planning and execution
• It highlights processes that are not working effectively and require correction and improvement
• It ensures that a company’s transportation vendors provide the services and rates that best meet the company’s requirements.

For freight data to be fully effective, it must include all of the standard fields such as pickup and delivery dates, origin and destination cities, provinces/states/postal codes/zip codes, mode, carrier name, service provided, weight, pieces or pallets, line haul rates, accessorial charges and fuel surcharges. In addition, the data must capture certain information that is often overlooked or incomplete. This includes the dimensions of the pallets or containers shipped, detailed descriptions of the products and actual and billed weight. Using average rather than actual densities as an example can lead to the procurement of rates that are applicable to a range of densities, resulting in consistent overpayment.

Effective management of freight expenditures requires the capturing of all carrier rate quotes in a consistent manner. If carrier invoices have not been audited in the past, this should be done as soon as possible for all types of freight - - - domestic, cross-border and global. Current Canadian regulations allow shippers to claim for billing errors and overcharges for the most recent three month period. In some cases, carriers may refund billing errors beyond the three month period. A shipper that conducts a post audit exercise can expect to recover one to two percent of their freight costs.

There are other benefits to a post audit. It will identify carriers that intentionally or unintentionally are committing billing errors. It may highlight issues with data quality. It will also highlight faulty audit processes and provide a road map for corrective action. On a going forward basis, it will set the stage for the design and execution of a pre-audit process to capture billing errors before they happen.

TMS systems provide rate auditing as part of the service. They also can provide various compliance tracking and spend management reports. There is an ongoing requirement to verify that a company’s route guides are being followed by its dispatchers and front line transportation personnel. There is also a need to track carrier compliance to ensure higher priced are carriers are not being used due to unsatisfactory load refusal rates by a company's core carriers.

Spend management reports highlight actual mode and carrier utilization as compared to plan and budget. Variances may signal poor supply chain planning, production problems, over-commitment by sales or other issues, all of which can result in unwarranted freight costs. Employing Best Practices in Freight Spend Management can save companies thousands or millions of dollars in excess freight expenditures and as a result, have a direct impact on the bottom line.