Manufacturers and retailers spend millions of dollars a year on freight transportation. Freight costs can represent between 1 and 10 percent of a company’s operating expenses. Many companies treat freight costs as a necessary evil. Once a year they engage in an annual ritual, the freight bid or RFP. The current carriers are squeezed in their pricing; sometimes new carriers are brought into the mix if some incumbents haven’t performed. Shippers walk away thinking they have dome their jobs and optimized the value of their freight costs. They haven’t.
Every few years, shippers with a freight budget in excess of $1 million should conduct an independent audit of their freight programs. Just as businesses audit their accounting practices, looking for opportunities for improvement, Transportation departments should do so as well. You might be amazed with what you find.
There are four key components of well conducted Transportation Audit.
1. Face to face interviews with the key transportation professionals using a structured interview format
2. Administration of a written transportation technology and strategy questionnaire
3. Observation of a company’s shipping operations including the packaging of the freight, dock operations , loading/unloading,
4. Analysis of a company’s freight data
The following items are assessed in the audit:
a) Organization of Transportation within business unit – degree of centralization/decentralization
b) Linkage between inbound and outbound freight
c) Where transportation fits within the design of the company’s supply chain
d) Location of plants, DC’s, vendors and customers and how transportation links these components
e) Freight spend as a % of revenue and trend over time
f) Utilization/effectiveness of transportation technology
g) Freight transportation budget versus actuals
h) Spend management/ Off-plan spend (e.g. use of expedited freight transportation)
i) Packaging of freight
j) Loading/unloading of freight – load optimization and load factors
k) Dock operation
l) Use and management of private fleet
m) Mode and carrier selection process/vendor and customer required transit times
n) Analysis of Routing Guide by mode
o) Freight spend data analysis by mode
p) Compliance tracking (e.g. compliance with routing guide)
q) Freight rate benchmarking – is it done?
r) Timing/results of most recent freight bids by mode and results achieved
s) Carrier performance management (e.g. scorecards) – on time service, billing accuracy, claims ratios, customer satisfaction
t) Freight rate auditing process – pre and post-audit
The results of the audit provide a prioritized list of cost savings opportunities. They highlight opportunities to strengthen the transportation organization. The audit also provides a road map for improving processes and customer satisfaction.
Has your company conducted an audit of its freight operations within the past three years? Was your company able to reduce its’ freight spend and improve the performance of its supply chain? If so, please share your experiences with the readers of this blog. If you haven’t conducted a Transportation Audit, you may wish to give it some consideration.
Dan Goodwill is the president of Dan Goodwill & Associates Inc. (www.dantranscon.com), a company specializing in transportation consulting services.