Freight Audit & Payment: International manufacturer case study

In the past decade, an International manufacturing company decided to select an external party to perform an administrative part (freight audit & payment) of the freight. The idea was to outsource the repetitive tasks and use an advanced IT solution in order to have LSCM more focused on strategic business tasks. The selected freight audit & payment business solution provider was ControlPay with its headquarters in Breda in the Netherlands and its processing centre in Kyiv in Ukraine.

This was a quite a challenging project for both parties considering the complexity of the flows (over 150 active carriers) and the volume of the activity (over 900,000 shipments per year). The total freight represents a significant part of the expense of the client in Europe, with roughly 120 million Euro per year. Concerning LSCM, freight represents the biggest past of the logistics costs (nearly 55%).

Key value of freight audit & payment for the client

• A systematic and full control on the invoices from carriers. All shipments created by the client in SAP are exported to the ControlPay freight audit platform and pre-calculated based on the Contract Agreements set up in the core menu. The system checks the shipment, receipt and application of correct rates to avoid overbilling, accessorial costs and duplicate billings from carriers. This means that all invoices from carriers are systematically checked against the expected costs. Only the correct and undisputed invoices are processed by ControlPay and sent as ready to be paid for the customer.
  - A high visibility and standardization in the preparation of the accrual for freight. All shipments not matched with an invoice from the carrier are identified as a liability by the system and reported in the accrual at the month-end. The calculation of the accrual is now made via one standard process at the European level and via an automatic booking in SAP at the month end.
  - Improving the process flows between the client and the carriers. All the different stages of the flows are stored within the ControlPay Freight Audit platform (FRED). This web-based platform allows the clients staff AND the carriers to follow at any time the status of the transactions (e.g. mismatching due disagreement on extra charges). Different reports are used to list the mismatches and errors, which are easily exported in Excel when required.

What has the client learned / gained from this cooperation:

Outsourcing doesn't mean no involvement

1. To work differently by focusing on exceptions.
2. Not all tasks can be outsourced. The critical and strategic tasks are still performed internally by the clients, such as negotiating with carriers. As an example, ControlPay performs the calculation of the month-end accruals (*) for freight but the responsibility remains by LSCM. (checking, contracts with external auditors) Therefore, the details of the accruals prepared by CP should be still validated by the local LSCM members before booking in SAP.
3. Communications between all parties is vital! Periodic meetings are held between ControlPay and the client. This to solve mismatching data and anticipate possible issues.

Data integrity is crucial and should also be reassessed periodically. Therefore, the processing centre in Kyiv in Ukraine was audited by LSCM of the clients side to perform an operational review of the business processes to ensure that they are handled in an efficient and controlled way. "It was quite an experience to see in one room in Kyiv a team of Ukrainian employees speaking different languages and being fully dedicated to the client", commented a spokesperson on the clients side. "Other office area's are dedicated to the freight audit activities of other multinationals, operations in a wide variety of markets. The two-day visit was also the opportunity to identify with ControlPay some best practice in order to be more pro-active. As an example, a weekly tracking report is used by our entities and the Central Contract Team to follow the situation with carriers and anticipate possible issues before the month end."

"Today we have gained in terms of control of the data processed and visibility in the financial books (less unexplained variances for freight in the income statement). "The foundation has being built in this stage, leading to more efficiency. "There are still some new future projects to move ahead!"