A client was spending in excess of $5 million annually on small parcel shipments and, by the way, never audited those invoices. The truth is, they lacked the expertise and technology that can be provided by third-party audit firms specializing in this service.
We convinced this client to outsource their parcel audits to a third-party parcel audit firm, and they began recouping thousands of dollars weekly in refunds for late-delivered packages and for all carrier invoicing errors. They then contracted with the same audit/consulting firm to help them re-negotiate their parcel carrier contract to receive lower rates. The net result: Their bottom line swelled by $1.3 million annually!
To put that number into perspective, this company would have had to sell over $100 million in new products to achieve the same bottom line profit impact. Even if that were possible, it would have required a monumental effort on their part. So, how important is transportation and logistics expense reduction to a company’s bottom line? The following chart indicates the incredible profit improvement opportunities that companies can gain by reducing their transportation and logistics expenses.
Now that we’ve identified several ways companies can pump up their profits, the real challenge is to find someone within the organization who is ultimately responsible for ensuring these profit improvement initiatives are actually achieved.
Way back in 2006, Jonathan Byrnes, a consultant and MIT lecturer, stated that a firm’s Chief Financial Officer should in fact assume the responsibility as the company’s “Chief Profitability Officer.” What a great idea! Mr. Byrnes went on to state that as much as 30-40% of a company’s business is unprofitable, and that many CFOs did not have a good grasp of which parts of their business were profitable and which areas were not. It is our contention that not much has changed in business today, and companies are still losing money they may not even know they are losing.
As we see it, much of the problem in identifying profits or losses within various operations within an organization lies in the fact that companies do not have the ability to properly benchmark their operations and costs.
Within every business, employees are performing multiple functions and are often stretched beyond their capabilities. Also, most businesses lack comprehensive training initiatives to ensure that employees responsible for managing functions, including transportation and logistics functions, have the skills and knowledge to respond to daily changes in government regulations, carrier pricing agreements as well as ever changing and often confusing, contract terms and conditions. These employees therefore lack the ability to make a real impact on their company’s bottom line.
But there are incredible opportunities to work with organizations outside of the business that have the necessary skills, talents, technology, and experience to bring this value to the company at a fraction of the cost and, in many cases, for no cost at all.
Companies regularly rely on outside accounting and legal firms to help them run their businesses. So, it also makes sense to rely on other focused third-party providers to improve customer service while simultaneously reducing transportation and logistics costs.
Want some ideas on areas within the transportation and logistics function that are ripe for this expertise? The following are areas offering an immediate opportunity for cost reductions and therefore, profit improvement.
Freight Bill Pre-Audit and Payment Services: Does the company have the trained analysts to comprehensively audit every freight bill it receives? And, if it does, just how much do you think that costs? Some estimates indicate that it costs major corporations more than $5 to process a single invoice. How many invoices does the company process each year? The many quality Freight Bill Pre-Audit and Payment companies providing global freight payment services can reduce that expense to just pennies an invoice. You’ll save tens of thousands and perhaps even hundreds of thousands of dollars each year.
Freight Bill Post-Audit Services: You may not think it’s necessary to have a firm audit previously paid and in some cases, previously audited freight invoices. So did a major Fortune 100 company. But then their post auditor recovered $9 million in duplicate payments that went undetected until the post audit firm uncovered it. Freight bill auditing firms work on a percentage of the recoveries they actually obtain, costing their clients nothing, but paying huge dividends.
Parcel Carrier Audit and Contract Optimization Services: Many companies do not audit their parcel carrier invoices simply because they don’t know how. The good news is that there are firms that specialize in these types of audits who obtain full refunds for duplicate billings, late deliveries, improper charges, invalid late payment fees and the like. Again, these firms typically work on a contingency fee. They bear all the risk and, therefore, companies don’t have to find room in their budgets to hire them.
These firms also help their clients re-negotiate their parcel contracts to obtain significantly lower freight costs. They can do this better than in-house operations because they have the trained staff, which many times do nothing but parcel contract negotiations. They routinely benchmark shippers’ rates to guarantee “best in class” freight costs. Here again, there are typically no up-front costs for the shipper.
Supply Chain Management Consultants: Thinking about building additional distribution or fulfillment centers? Where should they be located? How many should the company have? How big should they be? How should they be structured; what IT support services do they require? Don’t go it alone. Supply Chain Management Consultants can help you every step of the way and save you a great deal of time, money, and premature gray hair.
Third-Party Logistics Providers: Shipping, receiving, LTL, and truckload shipping services providing fulfillment operations, warehousing, distribution, pick, pack, and ship... the list goes on and on. These firms usually offer much more comprehensive services at much lower costs than can be obtained through in-house operations. You do not need to swim in the ocean all alone.
All of these outsourcing firms provide specialized services that improve efficiencies, increase their clients’ profits and allow those clients to focus on their core business. Companies now have the energy and resources to devote to increasing their own sales. Increased sales and reduced expenses – a winning combination that always augments profits.
Tony Nuzio is President, ICC Logistics Services. Tony has been serving domestic and global shippers for over 40 years by analyzing their transportation and logistics operations and associated costs and then implementing real and quantifiable cost savings solutions.