In the past year, transportation professionals have faced the critical task of upgrading process improvements while keeping costs under control. This has been extremely difficult, as carrier rates and fuel costs increased in 2008 but have not fallen to the same extent in 2009. According to a recent Aberdeen Group report, "Transportation Procurement and Payment: Righting the Ship in the Middle of the Storm," this underscores the significance of transportation procurement and payment to the overall performance of a company.
"We've seen a tremendous amount of activity in the area of transportation spend management as more and more logistics managers scramble to gain visibility into the true costs their companies are incurring on a regular basis," said Brad Wyland, Sr. Research Analyst with Aberdeen Group and co-author of the report. "We've seen that manual spreadsheets are not effective enough to provide the visibility necessary to be strategic in the transportation procurement process."
Within the past year, the dearth of visibility to actual spend information has prompted many executives to seek out better technology and processes to keep costs down. Respondents to an Aberdeen survey noted that the pressure to improve transportation spend management stems from high freight costs, greater awareness of the cost and service impact of transportation on the overall enterprise, a corporate mandate to improve transportation spending controls, customers demanding faster and more frequent deliveries, and the pressure to reduce administrative costs associated with transportation.
Under increased pressure to curb costs, companies are scrambling to obtain better information on what they are spending on transportation, where they are spending the money and how effective they are at managing carrier relationships. This issue is of particular importance to industries with thin profit margins, such as retail, CPG and consumer durable sectors. Yet, despite the availability of technology and solutions, the biggest barrier that companies face is lack of visibility into the true level of transportation costs. As a result, strategic actions that companies are considering include:
Improving the ability to internally analyze freight spend
Improving internal ability to source and negotiate freight rates
Tying transportation carrier selection, audit and payment together in a single process
Improving internal ability to adhere to routing guides during day-to-day carrier selection
Improving internal ability to award contracts to the optimal carrier
In addition to improving visibility, respondents are employing processes to better utilize spend data and improve sourcing and payment functions. The report notes that much of the attention in extending data visibility is to better enable employees to make decisions that are tied to best practices, while driving efficiencies and cost savings.
Among best-in-class performers, 87 percent have real-time visibility into transportation invoices, compared to 77 percent among average performers and 49 percent among laggards, the report notes. It added that 83 percent of the top performers can track total freight costs, versus 59 percent of average performers and 29 percent of laggards. The report also notes that 46 percent of the top performers say freight audit and payment data exists in a globally shared database, compared to 36 percent of average performers and 29 percent of laggards.
The ability of top companies to track total freight costs and have real-time access to transportation invoices gives them a significant advantage because it is "impossible to move forward unless you know where you are today and understand your 'true' cost of freight," the report explains. The nearly 50 percent that are managing freight data globally are able to reduce the complexity of managing each location as a separate instance of data and leveraging that data. As a result, among best-in-class performers:
Achieved a 4.26 percent decrease in baseline freight spend, year-over year
95.4 percent of carriers are meeting their SLA (Service Level Agreement) requirements
94.8 percent of carriers are compliant with contracts
The report offered several recommendations to achieve best-in-class performance:
Take control of transportation spend and create seamless visibility across the organization. Have a strategy that permeates throughout the entire transportation lifecycle (only 20 percent of laggards have data visibility at a global level and only 12 percent can share that data with external partners).
Leverage automation to reduce manual labor processes and focus resources on activities such as managing carrier relationships and driving cost reductions. By automating or outsourcing the audit and payment process, resources can be used for more valuable activities like root cause analysis and bid optimization.
Utilize spend data as a critical component of the transportation lifecycle in order to gain leverage in the changing market of rates and carriers. The report notes that less that one-third of industry average performers are leveraging spend data visibility at a global level. Yet, automating the processing of spend data is only half the battle. Only 50 percent of industry average companies benchmark spend rates against community/peer data to track key trends. Leveraging transportation spend data and technology can greatly reduce year-over-year contract spend.
"Relying on outdated, historical data that doesn't provide the details necessary to truly manage transportation spend prevents companies from being strategic in the procurement process," Wyland said "Automating and even outsourcing the audit and payment process can provide accurate information that allows companies to be more strategic with their carriers and drive contract costs lower."
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