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Transportation Spend Management: it’s More Than Freight Audit and Payment

Many companies mistakenly think that setting up a freight audit and payment system means they’re mastering transportation spend management. But, the two are far from interchangeable. Companies that implement a robust transportation spend management system to optimize their supply chains have 15% lower supply chain costs, 50% less inventory holdings, and cash-to-cash cycles at least three times faster than those not focused on supply chain optimization.

We at Trax believe it’s critical to your business to know the difference between freight audit and payment and transportation spend management and have a plan to build upon one to master the other. So, what is transportation spend management? What’s freight audit and payment? And where do they intersect? We’re here to guide you.

 
  • What is Transportation Spend Management?
  • What is Freight Audit and Payment?
  • Transportation Spend Management is More Than Freight Audit and Payment
  • Unique Merits of Transportation Spend Management
  • Optimize Your Transportation Spend Management
 

What is Transportation Spend Management?

Transportation spend management (TSM) is a data-driven approach to analyzing, optimizing, and leading the financial and operational performance of your logistics, as well as factors that impact transportation spend and the delivery of value to customers. It’s a comprehensive, integral, and complex part of superior supply chain management.

Transportation costs can amount to a colossal 10% of the overall product cost, and your logistical performance quality can immensely affect your brand. Hence, it’s critical to implement a system to minimize costs, increase spend visibility, maintain quality, and set you up for optimization and expansion. That’s exactly what we had in mind when creating our Trax Transportation Spend Management Maturity Model.

The Trax Transportation Spend Management Maturity Model is a framework that provides a roadmap for large, global enterprises to shift from a lack of visibility and control to a fully optimized and accurate data-based transportation supply chain—for all modes and geographies.

The stages of the Trax Transportation Spend Management Maturity Model are:

  • Proactive—Companies in this stage tend to respond to issues or problems as they arise, but are working toward better anticipation and planning.
  • Optimizing—Companies here obtain high-quality data and analyze it conscientiously. This stage offers higher visibility and comprehensive information availability, allowing companies to make informed decisions based on data rather than assumptions.
  • Leading—Companies revelling in this stage don’t just weather challenges, but use them to their advantage, widening the gap with the competition. These companies possess an abundance of aptitude, exhaustive capabilities, higher visibility, complete control, and fully-optimized operations. They’re pioneers of the market, driving change and innovation while simultaneously growing their market share and drastically cutting costs.
 

What is Freight Audit and Payment?

Freight audit and payment (FAP) is the management of a company’s transportation billing and payments. The process consists of carrier invoice collection and audit, cost allocation, discrepancy correction, payment processing, data management, and analytics analysis of a company’s global transportation spend.

A strong freight audit and payment system elevates buyer value, as it ensures correct and timely payment of freight invoices, regardless of carrier, geographical, currency, or technological variation. Error-free and on-time payments are possible thanks to successful invoice auditing, precise cost allocation, and the appropriate accrual of those costs across complex and diverse carrier sets. Plus, you can optimize your human resource allocation by outsourcing freight audit and payment to third-party experts like Trax.

A robust freight payment and audit process can severely impact profitability, providing savings up to 8% of total freight spend. It’s a vital cornerstone of transportation spend management, as a strong freight audit and payment process is the foundation for companies looking to optimize operations and bolster their bottom line.

While there are immense benefits in a strong freight audit and payment structure, its complex nature leads companies to outsource it in order to reap the rewards through lower costs and less involvement.

 

Transportation Spend Management is More Than Freight Audit and Payment

Freight audit and payment is the start of freight data management. If done well, it opens the door to transportation spend management, which allows for carrier and transportation financial management and then logistics and supply chain optimization. Freight audit and payment is the foundation so you can rise through spend management maturity to eventually have a fully optimized supply chain.

Now, we’ll show you how freight audit and payment functions in any particular area, and how transportation spend management elevates that entire process.

Billing errors

A major area of concern when it comes to supply chain management is billing errors. They drain costs, resources, and operational efficiency. Remedying errors is important, but adjusting your operations gets to the root of the problem and eliminates these errors completely.

Freight audit and payment focuses on finding and resolving billing errors. Transportation spend management goes one step further and leverages freight data management to remedy the root cause to eliminate billing errors, improve data quality, offer greater savings, and provide better insight and control.

Payment management

Managing payments is a complex, intricate, and important part of maintaining your supply chain’s profitability. Accurate and timely payments ensure that processes go smoothly and resources remain efficient. Remedying payment errors not only costs you money, but takes up resources, making your streamlined operation and efficiency collapse.

While freight audit and payment gives increased insight to payment accuracy and timeliness, transportation spend management builds upon that to include all areas—multi-modal transportation, surcharges, accruals, and more. Transportation spend management provides an intricate and detailed view of the labyrinthine process that is payment management so you can process payments accurately based on historical and real-time data. On average, companies with a robust transportation spend management process save 78% in processing invoices compared to companies that struggle with basic freight audit and management.

Claims management

Dealing with claims is one of the biggest headaches in supply chain management. They take up time and resources for what could’ve been avoided, if the process was optimized from the start.

Claims management concerns recovering money from lost shipments or goods damaged during transit, which can greatly affect your bottomline and resource allocation. While freight audit and payment centers on invoice errors, transportation spend management allows for money recovery, but more importantly claims data capture and management. This information opens the door to improving carrier performance and strengthening the relationship, essentially providing a roadmap for greater mutual collaboration and growth.

Spend visibility

Understanding how, when, where, and why you spend your money is business 101, which is exactly why spend visibility is a foundation of a strong supply chain management strategy.

The more complex your supply chain becomes, the more intertwined and convoluted your transportation spend channels grow. Then mistakes happen, bad decisions arise, and losses occur.

Freight audit and payment gives you better insight into transportation rates and rate lifecycles. It also provides a medium to gather data. The work and data gathered in freight audit and payment beautifully sets up transportation spend management to elevate your spend visibility. Transportation spend management builds upon FAP to encompass multi-modal transportation, route optimization, contract management, and more in one central location, giving meaning to the chaos of information. You then can make informed decisions, highlight areas of improvement or excess cost, and ultimately bolster your bottom line. This clarity can make all the difference for your company in a volatile market.

Analytics and data management

The 21st century is synonymous with data and analytics. Everything is measured, analyzed, and scrutinized to the most miniscule of details in hopes of gaining the slightest edge in an ever-growing, competitive landscape. Data quality and analysis sophistication can make or break prosperity.

Freight audit and payment can be done without data quality management, albeit becomes quite limited.. Freight audit and payment at Trax, however, integrates invoice management with data quality management, which allows for integrating your company information with diverse data structures from various carriers.

Transportation spend management takes all of that data and makes it actionable, driving for greater performance and greater value delivery. It collects data in real time while utilizing historical data to create a reservoir of analytics so you can set innovative processes, make refined decisions, and establish comprehensive KPIs. Such an abundance of data—and being able to interpret it to act on it—can set you apart from the competition, and allow you to plan for growth and expansion.

Rate management

Managing rates across different carriers and modes can induce prolific profits, which allows you to categorize shipments, create better profit margins, and make better business decisions.

Freight audit and payment provides limited visibility into rates of carriers and modes—it’s hard to manage, as you can only view one carrier or mode at a time. And it lacks the breadth to give real-time data, instead relying on historical data, or worse, estimated data based on the ideal performance situation to make future decisions. This is where transportation spend management jumps in. Leveraging real-time data, it helps you manage rates through a comprehensive view, encompassing all modes and carriers in a centralized manner. You get both the macro- and micro-visibility and flexibility to make informed, on-the-spot decisions.

 

Unique Merits of Transportation Spend Management

As established, freight audit and payment is a cornerstone of transportation spend management. There are, however, areas in which transportation spend management expands far beyond the reaches of FAP entirely. Let’s dive into them.

Routing optimization

Setting strong routing guidelines streamlines your process, saves money, and helps you deliver top-notch value to your clients, especially for time-sensitive business.

Transportation spend management allows routing optimization through leveraging both historical and real-time data, while simultaneously optimizing associated costs. This capacious perception lets you set resilient and thorough routing guidelines that you can monitor and evaluate to ensure they meet your objectives. Once you reach the summit of the Trax Transportation Spend Management Maturity Model, maintenance and review of routing guidelines become a swift and elegant process. This gives you a powerful edge on the competition in the most hectic of times, such as the mayhem with the COVID-19 pandemic.

Transportation spend intelligence

Transportation spend intelligence is the act of collecting, filtering, and analyzing transportation expenditure data in order to lower costs, improve overall efficiency, increase control, and enhance visibility. There are three main areas of concern when it comes to transportation spend intelligence: visibility, analysis, and outcome. By optimizing these three areas, you know exactly how much you spend on transportation, who you pay, and if you’ve achieved the desired results.

Transportation spend management delves deep into these aspects, creating a centralized basin of data that helps you define spend and understand areas of deficiency. As you go through the Trax Transportation Spend Management Maturity Model, you can remedy weak points while simultaneously optimizing strong points within your spend process. This results in lower costs, higher quality, and more satisfied customers.

Program management

Companies lacking in program management find themselves in a maze of inaccurate information and messy decision making that leads to repeat mistakes, limited process improvement, and unhappy customers.

Transportation spend management delivers robust, normalized, and quality data. This translates into your transportation program providing real customer value with on-time, damage-free deliveries and high-quality customer service. Transportation spend management gifts you with a framework for continuous process improvement. And Trax advisors can help you navigate to be a leader in your industry.

Trax Technologies

Trax Technologies

Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.

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