How visibility in a TMS reduces costs
Don’t know all the ways a TMS can help you? Read on.
Many people assume a TMS will save shipping costs but don’t know all the ways a TMS helps you manage your freight and where all this cost savings will come from. Most large shippers will tell you their TMS delivers approximately an 8% cost savings. How can that be? Most people ask. Hint it’s not all in the freight rates, to be sure, some of it is, but there are a number of opportunities unmasked when you have the power of data in your hands either for analytics or in real time for execution.
Keeping tabs on your carrier’s billing practices is a big monotonous job compounded by not always having the right tools. The fact is not all carrier’s rates are created equal. Accessorial charges differ, carrier to carrier, as do minimum charges, fuel surcharge, the number and intensity of reweight and inspections. Carriers are fighting a chronic driver shortage about to be compounded by mandatory ELDs come December 17, 2017. They are trying to enhance yields the way the airlines have done; yikes. If you’re trying to manage these variables past tense, you’ve already lost the war.
Cost vs. Functionality
What can you do about it? The first thing is to identify and quantify the problem through harnessing your data in real time. A transportation management system that’s easy to use and is made for your size business is a tool that pays back in many ways. In addition to streamlining your processes which will give you time to work on a problem, a TMS provides objective data to analyze the problem.
In working with LTL shippers one of the big pain points is the number of reweighs. I also ask them about the intensity of reweighs, some cannot answer that question. One should assume that if one carrier is reweighing more often but another is causing larger increases in weight, that we’d know the economic impact of the two and manage it. When the carrier who is reweighing more often and with more intensity (greater weight changes) asks why you’re not using him as much, you can show him. Many people don’t or have only subjective knowledge based on assumptions. With a modern TMS the answer to both questions of frequency and intensity of reweighing could be had.
In addition to reweighing increasing the cost of a freight charge, it also creates a clerical component that didn’t have to occur. The root causes of the reweighs should or could also be examined. Maybe a part or a specific SKU has a greater incidence of reweighs. If so an investigation should be undertaken to validate the calculated weight against proclaimed weight certificates from the trucker. Did our pallet type or vendor change? Sometimes weights for given items were established years ago and never updated. Comparing rates on erroneous weights of shipments is never a good idea.
Delivering on time
Are your shipments delivering on time? Sometimes you choose a carrier or a carrier’s expedited service level and don’t get what you paid for. Our TMS can be programmed to keep track of the low-cost provider, compare that to the provider used and then to the expected service level and the actualized service level. If the service you paid for isn’t what is delivered, a variance is noted and if you selected an enhanced service level a claim for the differential can be made on the spot, automatically. Carriers on time efficiency can also be mapped over a period of time to be used in vendor discussions and selection.
Accessorial charges do vary
What about accessorial charges? Accessorial charges do vary carrier to carrier and they are negotiable. The same with fuel surcharge and absolute minimum charge by region. They vary and they’re negotiable and they add up. Having accurate data in hand at negotiating time is essential to having a goal and a measuring tool.
Spot market quotes for LTL
Another point of on the spot negotiation is to get large shipment quotes not only from your regular LTL carriers but from spot market providers. Having a tool to first identify and then assist in getting a rate for your larger LTL shipments can have immediate cost saving benefits and sometime result in less damage by having the shipment loaded to ride. It may also result in fast transit times as the dwell time in breakbulk facilities is reduced.
A further point of remarkable savings is flagging exceptions such as freight charges that exceed the anticipated charge. Nobody likes to audit freight bills, even freight bill auditors complain about their work sometimes. If you only had to audit those invoices that do not match to an approved amount, life could be easier. It was recently reported that 1%-6% of LTL freight bills contain inaccuracies. It was not noted what the average dollar value of the discrepancy is.
Hand keying shipping information leads to errors
Inaccurate deliveries while rare, can create a problem with customer satisfaction and possible redelivery charges. Hand keying of orders with by your company or the freight company leads to typos and typos lead to mistakes. If you can positively pin it on the freight company fine but it took work and delayed the shipment, probably subjected it to further handling and made it damage prone. By using a TMS to electronically transmit the information to the carrier you eliminate a human touch. By integrating your TMS to your ERP or WMS you’ve eliminated two touches.
Timely notification of shipment exceptions is imperative
Timely notification of shipment exceptions is imperative to get ahead of problems. If a shipment has been reweighed, reclassified, had an unexpected accessorial charge applied the time to deal with, if you suspect the change is in error, is when the shipment is enroute, not after delivery when it is too late to have the carrier investigate. A TMS could be, as a for instance, programmed to automatically challenge reweighs above a certain tolerance.
Organize your RFPs
TMS is also a vehicle to organize your RFPs. Ah yes, the annual RFP and its concomitant analysis is now laid asunder by modern technology. A TMS can assess your RFP on the fly making it painless to source the low-cost provider in any lane. A TMS can also run a period’s historical shipping (providing it is in the system) against new bids and return a value of the cost saving or increase. It can also do this on a net basis by not only analyzing the provider previously used but possible the new low-cost provider. One should also flag spot market rates to be excluded from the analysis lest they be included at shelf rates in the study.
Consolidations are easy
Certainly, not the last way a TMS can make you money but often not considered due to complexities and time constraints are consolidations. Consolidation opportunities can be identified by use of a simple optimizer and run against standard LTL charges and produce a yield for your consolidation. It can then produce a cost from your truckload providers and compare. When you consider consolidations don’t get reweighed, reclassified and are not subject to breakbulk risks of damage, the decrease in back office clerical disruption often makes a consolidation not just a cost saving adventure but a work of art.
Hand keying of paper invoices has a chance of error
There also is accounting, accounting’s job is to enter freight bills into a payment system, possibly get the recorded or appended to the order and do it all quickly and without mistakes. Any hand keying of paper invoices has a chance of error. Also, tying the invoice to the proper sales or purchase order is sometimes challenging at best. By integrating your TMS with your accounts payable you can assure accuracy and visibility throughout the transaction cycle.
Visibility does not end with management, visibility should be extending to the entire stakeholder chain. Suppliers, customers, sales and customer service can gain visibility properly restricted if required into the supply chain. By providing visibility, you gain back time wasted on interdepartmental information exchange and create self-serve satisfaction throughout the constituency. Many man hours are wasted running down information that can be accessible at the click of a button.
Identifying supplier routing errors
Identifying supplier routing errors takes time, or used to take time. Modern TMS technology can identify supplier routing errors and calculate the back charge automatically. Better yet routing links can be imbedded with purchase orders ensuring that your vendor uses the right carrier and creating a shipment notification to the purchasing department, receiving and production. Get ahead of the curve not behind the eight ball.
Implementation of a TMS depends on the level of customization required for the build out. Training though in today’s easy to use user interfaces has decreased substantially. The operations screen of a TMS should not look like a spreadsheet on crack cocaine. Today’s mid-tier TMS products were built to be easy to use because they had to be. The developers knew that mid-tier TMS savings cannot be eaten up by laborious training and retraining.
How much does TMS technology cost? Fully integrated non-customized mid-tier TMS products can usually be provided under $2.00 a transaction for base level functionality and a modest to low five figure integration and setup cost. Enhanced functionality comes at a price but can sometimes increase ROI by multiples; think optimization and other enhanced features. Shippers have reported ROIs in the 30-day range and soft cost saving, meaning people’s time in the hundreds of man hours per person. Just gaining visibility alone is generally worth the cost of admission. The case for a TMS has never been clearer. The cost has dropped so as to be affordable by companies with only modest freight spends. The only question is why didn’t we do this sooner. Hint the technology is new.
At ShippersEdge we recommend a phased implementation. You can gradually retire an expensive legacy TMS or install one for the first time. Eventually all department can come onboard except engineers. I have nothing against engineers but I think they’d tell you how to build the thing. Just seeing if you were paying attention. Have fun.
Contact ShippersEdge at 952-777-4421 or visit us on the web at www.shippersedge.com/info