Freight Shipping Blog

Transportation Spend Management (TSM)

Posted by Rob Snowdale on Wed, Jun 17, 2009 @ 06:14 PM

The concept and practices of Transportation Spend Management (TSM) have been taught in business schools for years. In reality it is a little used and understood discipline in most small to medium sized companies. With transportation spend approaching fifty (50%) percent of total logistics costs and logistics costs trending higher, many CFO's or other "C","V" level personnel are asking questions about transportation spend management within their organizations. More often then not the answers they receive to those questions indicate a missed opportunity to create competitive advantage and to improve profitability.

So, you might ask, "what's the upside of implementing a properly structured and executed TSM program and how do we achieve that upside?" For most companies it can return the following benefits:

1. Improved service and transportation broker responsiveness

2. Greater control, visibility and insight into direct costs

3. A twenty percent (20%) or more direct cost savings

Believe it or not, for many small to medium sized companies the first step is to determine what their annual transportation costs are. Most of these companies simply have not taken control of this expense, using far too many LTL trucking companies and other transportation brokers. They allow an undisciplined use of transportation brokers within their company and by their suppliers who dictate carrier usage even through they are paying the freight costs. 

Many companies who employ an effective transportation spend management program are assisted in that process by the use of a freight audit, and freight bill payment company. In utilizing the services of these companies all freight invoices are send for detailed freight bill audit, entry into a freight audit database, and for freight bill payment. Cost allocation for each freight invoice or individual component costs of each freight invoice can be accounted for by entering applicable company specific general ledger (GL) codes into the freight audit database.  GL codes can account for freight costs down to the SKU level, by customer, by direction, or any other of a number company specified parameters. The reporting, control and visibility gained from using freight bill audit, and freight bill payment companies can be a small investment in returning significant benefits. The costs of these services are nominal in relationship to their payback for most companies.

Most freight audit and payment companies can also assist in the control of transportation spend through the implementation of Routing Guides that specify exactly which carrier should be used for each individual transportation transaction. The Routing Guides are lodged with all suppliers who ship inbound freight collect and all company shipping locations who ship outbound freight prepaid. If the Routing Guides are not followed, lost savings or non compliance reporting can allow the company to charge back their suppliers or shipping department for any premium freight charges incurred as a result of their supplier's or shipping department's non compliance.

These are just a few ways a freight bill audit and freight bill payment company can help you implement an effective TSM program. It's your money, you need to take control of how it is spent.

Here are the five (5) basic questions you need to ask to determine if your company has an effective transportation spend management program in place:

1. Are we leveraging our total transportation spend when negotiating with carriers, or is our spend fragmented across departments, business units, or Logistics Service providers?

2. Are we engaged with the right set of carriers, or are there other carriers that can meet our service level expectations at a lower cost?

3. Are we consistently using contracted carriers and paying contracted rates, or is there a lot of "maverick" spend taking place?

4. Are we being invoiced correctly, or are we paying too much? What's the cost of our freight settlement process and can we streamline it?

5. Are our transportation costs aligned with the rest of the market, or are we paying more or less than other companies?

(Source- five questions) : ARC Advisory Group

Topics: routing guides, general ledger codes, transportation broker, transportation brokers

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