Nothing is more frustrating for logistics managers than finding an unexpected charge on their shipping bill. In the complex landscape of freight management, these costly errors can easily slip through unnoticed without a solid audit process.
Organizations often find themselves at a crossroads: should they manage audits internally or partner with specialized firms? We’ll compare both approaches to ensure you know how to choose the best solution for your business.
What Is a Freight Audit?
A freight audit involves examining and verifying bills to check the accuracy of all charges and align with agreed-upon rates and terms. It also includes cross-checking invoices against shipping documents, contracts, and rate agreements to identify discrepancies, overcharges, or billing issues. This meticulous review is crucial for managing expenses effectively and preventing financial leakage in transportation operations.
Considering Internal Freight Audits
Pros:
- Direct Control: Managing the auditing activities within the company allows businesses to maintain complete control. Direct oversight can be advantageous for those who prioritize in-house management and want to tailor their shipping cost analysis to specific needs.
- Customization: Internal assessments offer the flexibility to customize the approach according to the business’s unique requirements. Companies with complex supply chain operations or shipment needs can use this adaptability to fine-tune their rate negotiation and routing strategies based on detailed, real-time data.
- Cost Savings: Managing the analysis within the company might seem more cost-effective because it avoids third-party fees. Organizations with a dedicated logistics team might find this approach more budget-friendly.
Cons:
- High Resource Demands: The internal freight audit process may be time-consuming and require significant resources. Training the staff necessary and maintaining new systems can strain companies without a large logistics department. These tasks may divert attention from other critical operations.
- Risk of Errors: Without specialized software and expertise, the likelihood of overlooking inconsistencies or making mistakes increases. A robust validation method is essential to ensure accuracy, prevent financial losses, and identify potential cost-saving opportunities.
- Lack of Benchmarking: The company’s logistics teams might not have access to comprehensive benchmarking data, making it difficult to assess whether shipping rates are competitive. Without access to freight rate benchmarking tools, organizations could miss opportunities to optimize their costs, leaving them vulnerable to overpaying.
- Scalability Issues: As businesses grow, the volume of transactions increases. Scaling an internal evaluation team to match this growth can be challenging and may not always meet business demands.
Partnering with Freight Audit Companies
Pros:
- Expertise and Technology: External partners bring freight bill audit knowledge and advanced technology to the table, which provides deeper insights and more detailed analytics than most in-house teams can achieve. Freight audit companies often use software to automate variation identification for accurate billing, minimizing the chance of expensive miscalculations.
- Industry Rate Benchmarking: These companies can access extensive industry data to benchmark your delivery rate against market standards. This process helps identify areas where you might be overpaying and reveals opportunities for revenue optimization. Benchmarking also provides insights into how your logistics costs compare to similar businesses, letting you make more informed decisions to streamline freight management.
To analyze your transportation costs quickly, try our Freight Rate Benchmarking Calculator and see how your rates compare to industry benchmarks.
- Scalability and Flexibility: Audit providers can handle fluctuating transaction volumes. They also offer scalable transportation management solutions (TMS) that can quickly adapt to your business’s needs, whether you’re experiencing growth or seasonal variations in shipping activity.
- Operational and Financial Benefits: Businesses can focus on core operations while third-party services handle the complexities. This external support often provides deeper insights into expenses, enabling more strategic decisions that can positively impact your bottom line and foster long-term profitability.
Cons:
- Cost of Services: Outsourcing can save money but comes with a price. Fees associated with these services might be a barrier to some businesses, mainly if their logistics budget is low.
- Dependence on Third Parties: Relying on an external company means entrusting a critical aspect of your transportation coordination to a third party. This dependence can be a disadvantage for shippers if communication or service quality issues exist.
- Data Security Concerns: Sharing sensitive financial and operational information with a third-party vendor can raise security concerns. It is vital to choose a reputable freight audit company with robust data-protection measures in place.
Making the Right Choice for Your Business
Choosing between conducting assessments in-house and partnering with an auditing service provider depends on your business’s needs and resources. For organizations with high shipping spending and complex logistics operations, the expertise and efficiency of freight audit companies can lead to more informed decision-making, ultimately benefiting your overall strategy. On the other hand, businesses with simpler operations or those prioritizing direct control might prefer managing cost analysis internally. However, weighing the resource demands and potential risks of inaccuracies against the perceived savings is essential.
Nolan & Cunnings offers an extensive freight bill management solution that addresses all your auditing needs while ensuring financial accuracy and operational efficiency. If you’re looking for a partner to help you navigate these challenges, contact us today to explore how we can support your logistics goals.
