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Y2K8

Most of us remember the concern and, in some cases, panic with which many firms approached the year 2000. Fears ranged from minor systems problems to a falling sky; but as it turned out, the consequences of moving into a new millennium were little more than sporadic inconveniences.

by Clifford F. Lynch

Illustration of graph The same cannot be said for 2008, however. Gasoline and diesel fuel prices both peaked above $4.00 per gallon (and $1.40 per litre in Canada), and we found ourselves paying more for just about everything in our daily lives. Shippers saw many trucks taken out of service by motor carriers attempting to control their costs.

Just as we were trying to digest this, the economy began to deteriorate; and although fuel costs dropped rapidly, so did the volume of freight requiring service by the carriers. As the year ended, hundreds of firms were declaring bankruptcy and thousands of jobs were being lost throughout the industry. The trend has continued into 2009; and today, the average supply chain manager is finding herself/himself dealing with far more serious issues than were present during the period of volatile fuel costs.

The economy has become a major concern for most firms, and there is a tremendous amount of ongoing pressure on logistics and supply chain managers to monitor and manage expenses as closely as possible. In order to protect their firms’ costs, service and position in the marketplace, today’s managers are increasingly relying on technology as a necessary measurement and management tool.

Transportation management systems (TMS) have been used by shippers since the 1980s, but today’s technology has made much more sophisticated and effective systems available. They have become a critical requirement for the successful management of a transportation function.

There are many advantages to utilizing a transportation management system. While most of these vary by individual firm, one leading TMS vendor has identified five basic advantages that it believes can save most firms up to 30 percent of their freight spend: contract management, optimal loading and routing, mode and carrier selection, shipment execution and performance improvements.

The selection of the system itself can be a daunting task. A TMS can be complex and expensive, and there are hundreds of vendors to choose from. The systems can be purchased outright, hosted by the vendor, or in some cases, be accessed on an on-demand basis. Most users agree, however, that a good system has two primary components—transportation planning and transportation execution. Most users also would agree that the data capture is the major challenge to implementing a useful system. One of the advantages of using a TMS provided by a firm’s freight bill audit and payment company, for example, is that it has already captured its clients’ data and, therefore, is in an excellent position to provide an effective system. The systems offered by freight bill and audit (FBAP) firms are not just rudimentary systems either. They are Web-based applications for organizations seeking an enterprise-wide solution, managed through centralized administrative tools.

For firms that do not require extensive capabilities, one of the “cafeteria plans” may be more suitable. Under this type of arrangement, vendors offer their TMS in modules. Available modules provide systems for such functions as carrier selection, information management, load planning and optimization, modeling and benchmarking, order and bill-of-lading management, posting and tendering, and rate management.

In the current economic environment, the rate management module is a must. It provides valuable assistance for centralized maintenance, transit time calculations, fuel surcharge and accessorial charge pricing, carrier rate files, major mileage programs and capabilities for rating all modes of transportation.

The critical transportation management system capability is freight bill payment. There are several good reasons to outsource freight bill payment to a qualified provider, but the one that has the most appeal is the strong possibility of reduced costs. It costs a large company about $11 in fully allocated costs to pay a freight bill. If a freight bill audit and payment company audits and pays these same bills, the cost to the client can be as little as 10 percent of the internal expenses. This results primarily from the FBAP firm’s economies of scale and systems capability. Since the average firm will pay thousands of bills annually, the technology and processes they have developed enable them to handle this activity at far less cost per invoice than that of the individual firm.

While the cost reduction can be significant in and of itself, the real value is provided through the business intelligence generated by the provider. The FBAP firm auditors’ experience, combined with the latest technology, ensures that clients pay the correct rate, including appropriate accessorial and surcharges.

Whatever TMS or freight bill payment process is selected, the primary objectives should be to increase visibility, improve service levels, and reduce transportation and administrative expenditures. While using these systems won’t improve the economy, it can enable a company to manage its transportation function in a more efficient manner. In other words, it is a tool to help us do the best we can in a rather unpleasant environment.


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