Millions of dollars worth of revenue leaks and financial reporting risks identified
A Fortune 200 logistics service provider with billions of dollars in revenue and hundreds of offices and logistics centers worldwide.
Like many logistics companies, this customer had grown largely through rapid acquisition leading to significant variances in tools, systems and processes across its operations and limited centralized visibility and control. Attempts to centralize many elements of the business through major IT system transformations caused significant disruption, increased costs and a degradation of internal controls. This caused a major reduction in expected yields.
It was easy to see that things were not working properly on a global scale, but it was difficult to identify exactly what was failing and why. These failures were affecting financial reporting and, ultimately, bottom line results.
Eager to quickly remedy the situation, the forwarder retained expensive consultants to analyze its financial processes. Unfamiliar with the intricacies of logistics transactions, the consultants were able to confirm that the problems existed, but were unable to specifically identify where, why or how to address the problems.
The forwarder began speaking with Trax in early 2015 to see if Trax’s Logistics Performance Management (LPM) solution could be used to pinpoint exactly where failures affecting financial performance and reporting were occurring, and provide data that could be used to implement preventative solutions.
Trax’s LPM solution identifies revenue and expense leaks and applies advanced financial controls to reduce those leaks. It does this through a continuous audit and refinement process that models reality instead of attempting to fit reality into a pre-defined model. Ultimately, LPM helps Trax’s customers improve margins and offer services that make them more valuable and profitable.
To test out Trax’s LPM solution, the two companies agreed to a pilot project that was focused on fifteen of the forwarder’s largest and most complicated global clients.
Trax began by performing deep analysis of all of the global agreements related to the relationship with each of those clients. Using Trax’s LPM Solution, Trax team immediately began identifying areas where control gaps could occur.
- Arrangements happening on a local level between the forwarder and its clients’ teams that weren’t visible to the people managing the corporate procurement, rates or billing.
- Un-auditable spot quote processes and non-contracted services being used by the client.
- Inconsistent use of terms for services requested.
The Trax team utilized its LPM software and analytics to examine a year’s worth of transactions to determine:
- Which control gaps were most material?
- Were there any patterns to the control gaps? From that analysis, teams from the forwarder and Trax worked together to identify why these gaps were occurring, and put in place preventative solutions.
$500M in revenue. The resulting findings were significant and material.
- 50% of invoices contained some level of error across all clients and regions.
- Under-billings on freight and fuel charges equaled 2.6% of invoice value.
- Missed pass-through billing and challenges in managing accessorial fees contributed to further margin erosion.
- Inconsistent contract management processes and shared visibility caused inefficiencies and unnecessary write-offs further affecting margins.
Root causes for under-bills, short pays, and late payments included:
- Incomplete or inaccurate data.
- Lack of controls around spot quote authorization processes.
- Lack of controls ensuring that pass-through charges paid matched charges recovered.
Trax was able to provide the forwarder with:
- Pinpoint visibility to the root cause of issues and the required solution, allowing for operational improvements.
- Increase in the yield per transaction.
- A path to a 74% increase in net margin.
Going forward, this global freight forwarder is set to move from reactive analysis to proactive application of the advanced controls. This will allow it to disposition data and address issues before they impact financial performance and reporting. Better, more reliable data will ensure better visibility and more prescriptive options for its customers. Ultimately, Trax will create an unprecedented win-win between the carrier and its clients by improving services, performance and predictability.
In summary, the global freight forwarder was struggling with identifying and fixing issues affecting the company’s expected yield. With the help of Trax’s LPM software and analytics, the forwarder was able to pinpoint the issues, define the solution a nd prevent future revenue leaks. This will lead to a further increase in revenue performance and service to customers.