You’ve heard of a Transportation Management System (TMS). You probably have one. You’ve heard of Freight Audit and Payment (FAP). You may have a FAP solution or think your TMS is adequate as a freight auditor. However, a TMS and an FAP solution are each essential components in a tech stack of supply chain management tools.
No single piece of technology is ever going to seamlessly manage all aspects of a global logistics operation with countless variables and complexities. But together, your TMS, focused on shipment execution, and your FAP solution, focused on post-execution activity, can work harmoniously to create a mature and successful logistics operation.
Freight Audit and Payment Software Systems
To optimize your global financial supply chain process, a freight audit and payment software system is crucial. Finding new efficiencies, ensuring compliance, and enabling cost reductions across your global transportation spend are just some of the valuable products of a holistic freight audit and payment system. However, achieving end-to-end visibility into your global transportation spend demands a sophisticated partnership with your freight audit and payment provider.
Read on to learn more about freight audit and payment and how your FAP system can work alongside your TMS.
History of Freight Audit and Payment
Prior to 1980, the transportation industry was strictly regulated, so payment terms were cohesive across the board, and freight invoices had to be paid in a matter of days. When the industry was deregulated in 1980, logistics services changed, and shippers and carriers could negotiate the terms of their freight bills. This made the freight payment process more complex, and as technology has advanced over the past few decades, the need for a comprehensive freight audit has increased.
Technology for Freight Audit and Payment
When a more robust freight audit is performed, the amount of data gathered regarding a company’s transportation spend is significant. A powerful freight audit and payment provider can then analyze that data to provide a wide range of business intelligence, including carbon emissions, carrier performance, and other important KPIs.
Transportation Management Systems
What is a Transportation Management System?
A transportation management system, or TMS, is a software solution that enables companies to better plan and optimize their global supply chain and logistics operations through multiple modes and regions.
The core functions of a TMS are:
- Shipment execution
- Load tendering to carrier/logistics service provider via electronic interfaces
- Load optimization – i.e., consolidation of LTL to full truckload and selection of proper carrier and service
- Software-focused – not sold as a managed service
- Basic freight audit – electronic verification that contract pricing is correct
The Evolution of Transportation Management Systems
Transportation Management Systems have evolved over the last 20 years. In the early days of TMS, there weren’t many integrations available, and manual data entry was common. The advancements in the early 2000s allowed TMS providers to serve not only shippers but brokers and third-party logistics providers (3PLs) through the same applications. When cloud-based solutions became the norm, it became affordable and widespread.
Today, basic freight audit is part of many transportation management systems, though the data captured does not provide a holistic view of an enterprise’s total transportation spend across their global transportation network.
The Goal of FAP & TMS Systems
It is not possible to control or optimize what you can’t see. You can plan your supply chain and bring carriers on board, but without the data to benchmark performance and monitor compliance, you are unable to see opportunities for improvement or spot the nuances that can affect spend.
Your TMS is focused on getting goods out the door as efficiently as possible, as it should. In best-in-class operations, it’s up to the data capture and analysis capabilities of a freight audit and payment system to provide the intelligence – what was actually executed by the carrier, how much it cost, and to spotlight any problems or opportunities for improvement along the way.
While your TMS will assist in managing operations efficiently, the integration, usually via EDI connection, of an industry-leading freight audit and payment solution empowers end-to-end visibility to your entire supply chain, matching what was shipped (over multiple modes, channels, geographic regions, and carriers) to what has been invoiced, while identifying any outstanding charges or anomalies.
Automate the Capture and Standardization of Key Data
The key data captured by your freight audit and payment solution isn’t worth much if it isn’t standardized – ingested, cleansed, normalized, and connected from disparate systems – to provide you with centralized intelligence on your transportation spend.
No TMS on the market can perform these tasks end-to-end, making it imperative to have a freight audit and payment solution that plugs into your TMS and automates the capture of that data.
Benefits of Freight Data Capture by FAP
The benefits of performing regular freight audits often pay for themselves. A structured freight auditing and payments system provides ample opportunities to uncover problems that may have otherwise gone unnoticed.
Uncover Unnecessary Costs
Investing in a freight audit process that validates your freight data can uncover excess charges and allow you to assess what your actual costs should be. For example, a freight audit can detect unnecessary detention and demurrage charges, which are fees for storage and delays in the return of a container. Further, by cross-referencing all of the fees included on your invoices, a freight audit can alert a company’s accounts payable team to unexpected accessorial charges, such as reweighing, and better optimize your supply chain to protect against these charges in the future. The sooner you adopt a structured FAP system, the sooner you cut extra costs and improve your return on investment (ROI).
Reveal Missing or Incomplete Data
Establishing a solid FAP process as part of your supply chain tech stack uncovers potentially missing or incomplete data by providing end-to-end visibility into operations. For example, if you’re missing information about routing rules or approval parameters, catching that early and filling in the missing pieces can save time, money, and even contracts while improving your relationships with your carriers. With complete and accurate freight data, the visibility into your global transportation spend provides you with invaluable business intelligence, allowing your enterprise to take operations to the next level.
Increase Efficiency
The freight audit and payment process uncovers operational inefficiencies in your supply chain operation. For example, when you replace manual FAP processes with a tech-based solution, you can increase efficiency across multiple departments and your supply chain. More efficiency in the freight payment process allows your finance department to focus on larger issues. More efficiency in your supply chain means lower transportation costs and even lower carbon emissions due to route optimization. As they say, time is money. Allowing team members to focus on core service issues is a better use of their time and, subsequently, better for your bottom line.
Future Proof Against Invoice Errors
Freight billing errors are inevitable – some estimates say up to 25% of freight invoices have errors – but uncovering them allows your company to address the issues and rectify them before larger problems emerge. If your internal FAP solution is properly auditing all invoices, you can quickly calculate shipping costs, see and pay freight bills on time, and streamline payment services. The key to preventing future invoice errors is to catch them early and determine the root cause. Then, you’ll have the chance to optimize logistics operations and make corrections for the future.
Author’s Bio
Chris Cassidy is the chief revenue officer for Trax Technologies, the global leader in Transportation Spend Management (TSM) solutions. Trax elevates traditional Freight Audit and Payment (FAP) with a combination of industry leading cloud-based technology solutions and expert services to help enterprises with the world’s more complex supply chains better manage and control their global transportation costs and drive enterprise-wide efficiency and value.
