Aug. 16 2010 07:24 AM

    Choosing a parcel invoice auditing company can be a daunting task: the vendor base is limited, very few people truly understand the complexity of parcel billing, and even fewer know what to look for when choosing an auditing partner. While quite a few of you have probably chosen, or are looking to choose one of these vendors, very few would have a behind-the-scenes perspective. As someone who managed one of these operations for a number of years and is now responsible for all transportation for a large multi-channel merchant, I want to help you understand why you need an auditing vendor; help you make this choice by discussing pricing structures and, finally, suggestions and a template for your Request for Proposal (RFP).

    Why Do I Need a Parcel Auditing Company?
    When I managed an auditing company, I was an integral part of the sales cycle and, inevitably, one question prospects always asked was, “Do I need someone to review my parcel invoices?” My answer was always, “Yes.” Today, as the Transportation Category Manager for a major multi-channel retailer, my answer is still yes, although with one qualification: a lot depends upon your annual spend. If you are spending more than one to two million dollars annually, I would highly recommend you use an outside vendor or an internal system. If your spend is above $10 million dollars a year, it’s critical that you do.

    “Why?” you say? Based on my experience, a parcel auditing company should be leveraged to do four things in this order: visibility, reporting/analytics, general ledger cost allocation and invoice auditing. If you know your business and have positioned your company and agreement(s) so you have the least amount of auditable exposure — that is: you have an address correction system in place; you have the ability to identify and manifest residential and commercial addresses; you have no self-inflicted Manifested but not Delivered shipments; you have limited use of airway bills; etc. — the audit itself will be the least important of the four. But, by doing the audit, you limit your exposure to “outliers” or “Black Swans” as Nassim Nicholas Taleb calls them in his popular book The Black Swan. Basically, this is something that happens so infrequently it cannot be predicted. Trust me, Black Swans will come along. Today, FedEx and UPS make minimal billing mistakes and almost all the Black Swans I have seen were self-inflicted technology or operational issues, but they are there. If you are auditing hundreds of parcel invoices on a weekly basis, you will see more than your share of Black Swans. The keys here are minimizing “risk exposure” and the “sleep at night” factor. 

    Parcel Auditing Company 101
    Before we go any further, a short tutorial on parcel invoice auditing companies will be helpful. Again, this is a niche market and not a lot of people understand the competitive landscape and workings of these vendors. The more you know about them, the better equipped you will be to make a qualified decision.

    Ownership
    All parcel auditing companies are not created equal. The industry runs the gamut from highly sophisticated companies with large staffs and solid technology to people working from their homes with no technology. One key thing you need to know is that many companies do not own the technology they are using and might not even have staff; they subcontract another audit company’s technology and have re-skinned the true owner’s website with their information. I’m not sure this should disqualify a potential vendor, but I probably would not choose a partner that does this. You really never know what their relationship is with the outsourced company or when it will end. And, in reality, why subcontract? Why not just go direct? This is a key consideration; a critical question that should be one of the first you ask before going forward with a potential partner. 

    Technology
    Parcel invoices are data rich and, if you choose the right vendor with the right technology solution, you can really take advantage of the data to drive down your spend. If you pick a vendor with inferior technology, it could take hour after frustrating hour to run a simple report. In part two, there is a list of specific technology questions to ask, but a critical one is, “Will the vendor demo the system for you?” If they will not, be cautious. That should be considered a red flag. If they do a demo, is it in a test or production environment? If it’s in test and your response is lightning fast, that might not be the case in production. My recommendation is two-fold: First, request a test audit of your data using a minimum of four months of data and gain access to the system for a few days so you can see what the response times are with your data. Run a few reports at different times of the day/week to see what happens. Second, check references. Ask for a minimum of three references and fully vet each one of them. Then try to independently verify the vendor’s performance through colleagues — this type of feedback is invaluable.

    Reports
    Most companies have a set of developed or “standard” reports that come included with the system. Review these and if there not at least 20 available, this could be another red flag. Some companies allow for ad-hoc reporting, which may be of value to you. Most users’ business requirements differ so much that only a few standard reports can really match the needs of all. The ability to build and run your own reports is a differentiator but it can slow down systems if another client runs a large report. While it might sound good, ad-hoc reporting could be a response time issue. Another key question to ask is whether the vendor provides custom report writing. Then, if so, what is the cost and typical turnaround time for such projects? Most companies provide this service at an hourly billing rate. The company I use today does not have ad-hoc reporting available but is very responsive in building those, provides ad-hoc queries when I need them and has a portal where I can export all my data in a CSV file for internal analysis. This works best for me.

    Beyond delivery methods or customization, the reports that are available are key. As mentioned above, all business needs are different, but at a minimum you want: Address Corrections, Zone Summary, Manifested not Delivered, Lost and Damaged, Air to Ground Compare, Invalid Residential Surcharges, Accessorial and Surcharges and Summary reports. Some vendors now have performance dashboards that provide high-level visibility with the ability to drill down into the detailed data. The vendor I use has this capability and it’s very handy. This, to me, is another differentiator in selecting a parcel auditing company. 

    Summary
    Choosing the right parcel auditing company is critical to the success of the category and, as you have seen, the process is more involved than one might think. However, based on my experience, if you understand your needs and the basics of the marketplace and structure your RFP correctly, the resulting agreement can be a win/win for you and the vendor helping you better manage your parcel category and give you the ability to reduce your costs through improved visibility and reporting.

    Don La France is the Director of Logistics and Supply Chain Solutions and the Transportation Category Manager for 1800-flowers.com. He is responsible for all Enterprise Inbound and Outbound Transportation and can be reached at donlafrance@gmail.com for any further questions or comments.

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