By, Nishan Kumar, Assistant Trainer
Once upon a time manufacturers, shippers, and other supply chain companies entered in contracts with transportation companies for guaranteed rates for specific lanes that carry specific cargo at a specific weight for specific miles. Despite the carefully negotiated contracts by logistics engineers, experienced logistics professionals and buyers, the accuracy of the invoices were horribly inaccurate.
A 2015 U.S. Bank report showed that only 1 in 10 freight bills are accurate. With a 90% failure rate to invoice correctly, the 2015 report advocated that shippers engage with Freight Bill Audit and Payment (FBAP) to capture lost revenue by literally auditing the invoices for accuracy. Freight bill audit and payment was not a new concept to the logistics industry in 2015. Most FBAP functions were handled internally by the shippers for decades.
The 2015 report, advocated to outsource the FBAP to third-party firms to reduce overhead and improve efficiency. In this tale, many shippers moved their FBAP functions to third-parties with the impact of saving between 2% and 15% of their in-house costs. For most, a 15% cost saving is significant. The moral of the story for shippers appears to be to outsource FBAP to a third-party who have economies of scale and drive down your costs to audit invoices and ensure overpayment of incorrect invoices is eliminated. The end.
But, what if this story was re-imagined?
What if the moral of the story was NOT to engage in third-party to complete FBAP?
What if the whole concept of FBAP was as quaint and antiquated of a concept as using leeches for medicinal purposes?
Vantage Agora works through a process of Operational Excellence. As we considered entering the third-party FBAP process we began to realize this is an incredibly flawed process. Saving 2% to 15% of FBAP costs is hardly a boon to shippers. In what other industries do two parties enter into a carefully negotiated contract and then the buyer of services carries 100% of the cost to audit 100% of the invoices issued by the provider?
Vantage Agora recommends shippers completely eliminate the process of FBAP, both internally and with third-parties. In our analysis, we have discovered the most efficient way to proceed is to simply focus on the PAYMENT part of the FABP process. Vantage Agora recommends shippers simply pay the CONTRACTED rates within the contract payment terms (next day, within 30-days, etc.) of the confirmation of delivery. We suggest the burden be switched to the transportation provider to prove the contracted payments are not accurate rather than the shipper auditing the invoices. We recommend the shipper pay the contracted rates and have the transportation provider prove the shipment violated the terms of the contract (weight, cargo, distance, expedited shipments, etc.).
Once the transportation provider supplies the shipper with the documentation of the shipment details that deviated from the contract terms then the shipper can pay the unpaid amount. By changing the paradigm to this model, it would save shippers 100% of the FBAP costs. Why save up to 15% of wasted money when you can save 100% of the wasted money. Now that’s how you get to happily ever after!
Call Vantage Agora at 216.816.9900 or email us to see how you can achieve Operational Excellence by implementing industry-leading innovations.