Long an outsourced service in the US, Europe-based manufacturers are beginning cotton on to the benefits of freight audit and pay, and other e-commerce tools to tighten their supply chains
Born in the 1950s out of US legislation standardising freight rates and insisting freight companies were paid within seven days, freight audit and pay is now being increasingly adopted by European companies, particularly OEMs and tier suppliers, as an outsourced service.
“Automotive accounts for 15% of our European business, and it’s growing,” says Dominic McGough of nVision Global. “But 90% of North American companies, across all industries, outsource freight audit and pay, compared to only 11% in Europe.”
The prime function of freight audit and pay from the shipper’s point of view is to ensure invoices are correct: if a forwarder is meant to ship by sea but bills for airfreight, the discrepancy will be flagged up so the shipper or the freight audit company can investigate.
“Companies are driven to freight audit by a lack of control, compliance and visibility of their freight and freight spend,” says Dietrich Kinds at ControlPay. “Financial regulations are also playing a part: companies must have visibility and control of their financials and, for multinationals, this is exceedingly difficult.”
Since approximately 5-7% of freight invoices are incorrect, any reduction in errors translates into significant sums: on average, freight audit can save 2-8% of total freight spend. An OEM could, for example, place three orders at separate times, with no mechanism to consolidate them. The carrier then charges separately for the different shipments, even though they were dispatched on the same day in the same vehicle for the same delivery address.
“US companies are more focussed on cost savings,” Kinds believes, “whereas in Europe, companies are more interested in the data they obtain from the audit.”
McGough agrees. “Companies want to drill down and identify each individual shipment and the charges attached to it. They can then analyse whether any of these charges can be avoided or contracts re-negotiated.”
Shippers also use the data to monitor carrier performance, identifying any carrier which is regularly late, levies inaccurate invoices, or damages cargo more frequently than other carriers. But carriers benefit, too, because they usually get paid quicker.
“Once an incorrect invoice is identified,” says Kinds, “shippers will often hold the invoice to investigate why–and that could take months. This Autumn, ControlPay is speeding up payment further with a freight factoring service. Once it matches the invoice with order and ensures it is correct, the carrier can get paid within three days, instead of waiting for normal payment terms.”
ControlPay is possibly the only European freight audit and pay provider which is not a subsidiary of a North American company. Others, like nVision Global, set up separate operations to cater for the special European requirements. Both emphasise the differences between European and North American billing.
“Freight audit is more complicated in Europe,” says Kinds. “VAT has to be taken into account, as do the multiple currencies involved. Most customers are new to freight audit, too, so implementation is slow.”
“Charging is different, too,” adds McGough. “In the US, charges are based on mileage and unit measurements like full truck, part load or cubic tonnes. In Europe, they are based on unit land and either kilometres involved or loading metre, a measurement covering the area between the bottom and top of the truck.”
However they’re charged, invoices–either paper or electronic–are normally sent to the freight audit and pay company which, after checking the invoices, either pays them or advises their customer to do so by sending a weekly reconciliation sheet.
From freight audit to freight procurement is a short step and nVision Global has made the hop with four services. Users can obtain a quick quote for a specific route from previously agreed carriers or a rate for a full truck load within 24 hours, again using pre-determined service parameters, their preferred carriers or one of nVision Global’s 6,000 preferred carriers.
“The power is in the analytics,” says McGough. “We can compare routes and carriers, helping customers work out the impact on their business if, for example, they give one carrier 50% of their shipments and split the rest between three or give one carrier one geographical area and another the rest.”
A number of automotive companies, such as Tenneco, use freight portals such as Inttra or GT Nexus (see next page) at least some of the time. The portals allow shippers, carriers, forwarders and other relevant bodies to obtain or provide quotations, book freight space, print off shipping documents, etc.
Freight portals are good for shopping by price, but some shippers may prefer to look more closely at service levels. Inform’s supply chain execution software helps shippers choose a carrier, a route and a mode of transport for every shipment. Designed initially for finished vehicles, the package handles parts shipments, yard management, storage and so on.
“An OEM wanting to move cars from, say, Spain to Russia would key in details of the shipment and the software will come up with a suggested carrier, based on the OEM’s freight contracts, whether it should be shipped by road, rail or ocean, and the best route,” explains Inform’s Matthias Berlit. “When inbound parts are involved, it also calculates waiting time, which can affect cost. The information gathered from the supply chain execution system can be transferred to freight audit and pay to make it easier to check invoices.”
Two other systems work in a similar way to freight portals, but deal with supplier relations. SupplyOn and SupplyWeb both enable OEMs to connect to suppliers, place and track orders, print out shipping documentation and so on.
“Suppliers can see all orders from one manufacturer, all orders that arrive on one day or in one week, etc,” explains SupplyOn’s Markus Quicken. “Every time a new order is received, the system sends an email to the supplier, who can re-key the order into their system, print it out, or integrate SupplyOn with their order management system for seamless transfer of data. They can then return confirmation, Advanced Shipping Notification, invoice or credit note, with digital signature, if required.”
SupplyOn also enables OEMs to put out requests for quotations, receive tenders and, through a quality management module, it helps suppliers match their product against OEM specifications. A link to the EU’s Import Customs System is being developed.
Logwin Solutions helps its automotive customers link into SupplyOn and then use the order data to feed into its freight audit and pay system. “There is a long way to go before administration is truly automated,” believes MD Stephen Freichel. “Each of an OEM’s plants sometimes does things differently. But an open e-commerce platform like SupplyOn can help encourage the use of IT.”
SupplyWeb, a product offered by Infor used for a number of industries, also provides a communications portal for OEMs and suppliers to tender for orders, publish contracts, obtain digital proof of delivery etc. It works particularly well for vendor managed inventory, allowing an OEM to call off what it needs from an annual order each week, with up-to-date forecasts sent over SupplyWeb.
Suppliers can also use the portal to notify customers of potential delays, new product details and other information. But ironically, SupplyWeb has found OEMs as interested as suppliers in using the system. “We expected to only attract suppliers,” says Infor’s Wolfram Schmid, “but we found OEMs like the visibility of inbound orders they get from SupplyWeb. Both OEMs and suppliers use it to monitor each other’s performance, too–to see if suppliers meet quality and delivery promises, or if an OEM constantly changes its order or pays late.”
AIAG is now working on its own trade allocation system, which covers everything from order to final delivery. The plan is to allow OEMs, suppliers and freight companies to share information on orders and transport, and produce necessary documents, including e-invoices. Links to US customs are also being built. A pilot involving GM, a Korean battery supplier, DHL, Ceva Logistics and APL proved it can work; now AIAG is finishing a guide to rolling out the system.
“The average order is touched by humans 26 times,” points out Mike Commerford of Global Communication Systems and coordinator of the AIAG initiative. “We can reduce that to nine. We found that 92% of information needed to move an order is known before the goods leave the supplier. This will allow order fulfilment to speed up and the volume of goods going through the supply chain to be increased.”
AIAG is working with organisations across the globe, including Odette in Europe, to make its trade collaboration system a global tool. Odette has already been working on e-invoicing, particularly for smaller companies, but has been faced with difficulties caused by different interpretations of EU directives.
“Different EU countries have different legal requirements,” explains programme manager Joerg Walther. “Germany and Spain require a verified digital signature in an effort to prevent fraud, whereas Britain relies on normal business controls. Smaller companies can’t always verify the validity of an electronic signature or keep electronic archives.”
Tenneco is a heavy user of e-commerce. Freight portals help it find carriers and book space–but only where there is sufficient volume to make it worthwhile. “If an RSQ exceeds €10m ($12.8m) per year, it is worth using a portal,” says Felice Patti, manager European logistics. “If it is a lot less, it is easier to do it manually.
“To have direct links with a carrier would be difficult, since we use over 80 companies for our freight. We used to use 230; now I’m trying to reduce the number to a maximum of 45 in Europe.”
Tenneco uses e-invoicing too, relying on PowerTrack for freight audit and pay. Patti says that SAP works well as an ERP system, but it does not give an overview of shipments, such as what Tenneco has with a carrier, how big it is, etc, which means Tenneco cannot benchmark freight companies with it–but with PowerTrack it can.
“We began with a saving potential from freight audit of 20%; now we save approximately 5-6% per annum from a €260m freight spend,” Patti says.
Tenneco also links in to SupplyWeb to communicate with raw material suppliers. “We confirm our order through SupplyWeb and our supplier tells us when a shipment is ready for collection. We’re now working on a way to give our carrier a link to SupplyWeb so they can see when they have to pick up our order.”
Bridgestone Europe is another freight audit and pay customer, using ControlPay’s service. “We wanted to get our budget under control,” explains Yves Kerstens. “We receive 850 invoices per month. Freight accounts for 50% of our total supply-chain budget. So in 2005 we went to ControlPay.”
All Bridgestone Europe contracts are now certified by the system, allowing the company to consolidate shipments and gain accrual of provision so that, two days after the end of the month, all information about what has been booked and billed is sent to accounts.
“We reckon we’ve eliminated the 2-3% of over-billing we used to experience; the reporting is good, too, as we can find out what we have with each carrier, what’s going to each destination, who delivers on time or late, etc. We even assess the cleanliness of the truck at the warehouse.
“If a carrier is consistently not meeting service requirements, we speak to them. If they don’t improve after three months, we stop using them.”