Transportation costs are one of the top factors that impact a company’s bottom line. Nearly 25% of supply chain professionals state delivery costs as the biggest challenge in B2C e-commerce. Optimizing your transportation spend management increases spend visibility, reinforces control, and provides a stable foundation to grow your company.
What is Transportation Spend Management?
Transportation spend management (TSM) is a data-driven approach to analyzing and optimizing financial and operational performance of your logistics network, as well as factors that impact spend and the delivery of value to customers. It’s a complex component of the supply chain. Transportation expenditure often accounts for 11% of annual sales revenue, vastly lowering a product’s profit margin. Yet, you can control these costs through optimizing your transportation spend management processes. This is why Trax is dedicated to helping you master the delicate art of transportation spend management, offering a maturity model that can enhance your operations and inspire growth and prosperity.
Trax is redefining transportation spend management. Trax’s 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.
We’ll walk you through the phases of maturing your company—from responding in the moment to the demands of your business and transportation partners via basic freight audit and payment (FAP) approaches to a Leading company that has optimized and matured their transportation spend to become a leader in the industry.
Maturing Through Transportation Spend Management
Trax’s Transportation Spend Management Maturity Model is based on stages that build upon each other: Proactive, Optimizing, and Leading. Moving through each stage impacts all factors of your company’s transportation spend management. The higher you climb up the model, the more optimization that occurs, ensuring that your company has complete visibility and control on transportation spend. This translates into delivering recognizable value to your organization and customers.
Transportation spend begins with freight audit and payment, as FAP offers potent data to collect, measure, and analyze to begin gaining insights and building KPIs to include in your carrier scorecards. But when you’re doing only freight audit and payment, you’re responding to an event or action, sometimes long after, rather than having backup plans or foreseeing potential bumps in the road. It’s the mere basics of spend management—processing and paying invoices in a timely and accurate manner. At Trax, we use our innovative software to streamline your FAP process for efficiency and cost savings, and we create a data management system so your company can collect accurate, up-to-date data.
The devil is in the details. Transportation spend management delves into the details of freight data—rates, volumes, accessorials, etc. It’s imperative to understand and master each stage before moving on to the next. Creating a solid foundation ensures streamlined processes, accurate data, optimized efficiencies, and more. Companies that try to mature in a hectic manner end up investing resources and money into matters that they don’t yet have the means to utilize.
You should look to master freight audit and payment, automate invoice processing and payments, accurately audit to contract rates and accrue appropriately based on those audits, and set a transportation freight data management strategy. This will prepare you to enter the Proactive stage.
Let’s dive into the stages of the Trax Transportation Spend Management Maturity Model.
Becoming Proactive in the Trax Transportation Spend Management Maturity Model means you’re looking ahead, planning, forecasting, and anticipating. This stage boosts transportation spend visibility, data quality, and forecast accuracy.
Enhancing your data management processes is crucial. It’s important in the Proactive stage to also match invoices to manifest records, ensuring that what was ordered at a specific price was shipped on time and for the right cost. This helps catch invoices from shipments that weren’t ordered or received, thereby saving you money.
Throughout the Proactive stage of maturity, Trax identifies errors and gaps in your data to better determine data quality. Trax has high standards for data quality and collection, ensuring that data is reliable and accurate to inform your decisions. We then advise on and help you to establish freight data management best practices. This grants a continuous improvement cycle where KPIs drive decisions in a shorter cycle time, creating a regular cadence to adjust to market conditions.
Ensuring that your data is top-notch empowers you to set predictions and plans, shifting your company’s stance from simply reacting to being prepared and proactive. The next stage of maturity capitalizes on this capability.
The Optimizing stage means you use effective strategies, based on the foundational components, in order to continuously improve. You can measure strategy success via KPIs—you achieve the initially planned savings.
Furthermore, you can tackle optimizing two integral parts of transportation spend management: finance and carrier management.
Finance management optimization
Optimizing budgeting, cash flow, forecasting, and accruals increases efficiencies and accuracies of your financial operations, thereby reducing resource and financial losses. Evaluating any data fluctuations or variances can increase visibility. This constant monitoring and evaluating helps mitigate risks and aids in identifying mistakes (and unnecessary costs) that may arise.
A great step toward financial optimization is the use of electronic billing, such as EDI and API, a process that can make invoice processing 77% faster and 81% cheaper. This type of automation can reduce mistakes and free up resources.
Carrier management optimization
Carrier management optimization is crucial, as well. It boosts visibility into carrier performance so you can identify which carrier is most suitable for various situations. Carrier scorecards are a great tool for grading carrier performance, offering objective ratings and reports on your ROI and quality of service. Analyzing carrier metrics through a set of KPIs provides decision makers with the necessary data to make informed and profitable decisions.
The flexibility and efficiency gained through optimizing your financial and carrier management open a pathway to innovation and rapid growth. Companies that master the Optimizing stage can perform more complicated operations swiftly and adeptly. Expedited shipping, swift spot quotes, ad hoc deliveries, etc., become simple tasks and leave behind the panic and obscurity.
Once processes are optimized, it’s time to innovate and pioneer, taking us to the final stage in the Trax Transportation Spend Management Maturity Model.
Companies at this stage are pioneers who can revolutionize the industry through their fully matured transportation spend management foundation. The flexibility, dynamic structure, enhanced visibility, and quality data put you in a unique and favorable position.
Leading companies have visibility into their suppliers in terms of spend, advanced shipping notices, routing guidelines, comprehensive scorecards, and other supply management strategies. A leading company often accepts the cost of transportation on the supply side in order to gain this higher visibility.
Let’s look at an example. Imagine there are two companies: Company A and Company B. Both are going into the 2020 holiday season, which has a higher consumer shipping volume than previous holiday seasons.
Heading into this hectic period, Company A is in the Leading phase—it has optimized all processes in transportation spend management. Company A is calm and has a clear vision, with an accurate forecast and the capabilities to plan proactively. It has lined up quality carriers and any additional resources for a reasonable cost.
This company can prevent many transportation issues and is prepared to handle the inevitable ones that arise with every holiday season, due to its quality data to guide any decision making. Customers receive excellent customer experience with on-time deliveries, undamaged goods, and higher value. Happy customers are likely to buy more, spend higher amounts, and refer more potential customers, which translates into transportation-driven business value.
On the other hand, Company B only has freight audit and payment—it hasn’t matured to the Proactive stage yet. Company B is anxious about the upcoming swell of work and must react to problems as they arise due to a lack of visibility, control, and accurate data. One of two poor outcomes are likely to happen for Company B:
- Customers receive late or damaged shipments, leading to bad customer experiences, an influx in customer complaints and claims filed (increasing resources, time, and costs), a hit to brand reputation, and so on—all of which negatively impact the company’s bottom line.
- More seasonal workers need to be hired and ad hoc shipping (and perhaps even accessorials) must occur in order to provide a good customer experience. This means that Company B incurs drastically increased costs that should’ve been avoidable. Disturbingly enough, this situation is the lesser of the two evils—it avoids customer complaints, lost sales, an influx in claims, etc.
A Leading company that implements the Trax Transportation Spend Management Maturity Model can automate spot quotes, optimize contract rates, and enhance the use of premium transit services to offer unique and high-quality customer experiences. These mature companies are also capable of optimizing shipping routes, reducing dimensional rate charges, and minimizing or even eliminating accessorial charges to boost their profit margins. They can optimize DC/FC locations and drive supply chain predictive intelligence to ensure that transportation operations are swift and efficient.
When you’re doing only freight audit and payment, you’re trying to survive. Proactive means you can plan ahead a bit. When you’re Optimized, you’re confident and capable. But when you’re Leading, you use innovation and creativity to solve even the most unexpected, complicated problems. It also means you can utilize your supply chain’s streamlined transportation to drive customer satisfaction, create value for your company, and make a profit. Leading means tough periods become opportunities to widen the gap between you and the competition.