I recently had a conversation with Chris Cavin, the Director of Purchasing Shared Services at RockTenn (and formerly the company’s Director of Transportation), about RockTenn’s approach to freight audit and payment.
RockTenn, based in Norcross, GA, is a leading North American producer of paperboard, containerboard and consumer and corrugated packaging, with annual net sales of about $3.0 billion. The company has more than 100 locations it ships from in North America. Its transportation processes used to be decentralized, with every plant managing its own transportation planning and execution activities. As a result, RockTenn had poor freight data–in many cases, the company couldn’t determine the origin, destination, or accessorials that it paid.
With an annual freight bill of almost $200 million, and a complex, manual process for auditing and paying freight bills, RockTenn knew that it was leaving money on the table. To improve its process, and as a first step toward implementing a transportation management system (TMS) and centralizing its transportation planning and execution processes, the company employed Cass Information Systems to serve as its outsourced freight audit and payment partner at the end of 2006.
Cass’s freight audit managed services are powered by its proprietary hosted software that matches invoices with shipments. Before RockTenn implemented a TMS from Transplace, RockTenn would send its invoices and shipment records (bills of lading) to Cass, and Cass would then match those invoice/shipment records with the bills from carriers (about half of the carriers were connected to Cass via EDI). After RockTenn outsourced transportation planning and execution to Transplace in 2008, the Transplace TMS solution became the source for shipment data. The Cass solution contains RockTenn’s preferred carriers by lane, their rates, and the agreed upon rates for accessorials and fuel surcharges. If everything goes well, “touch free audit” is achieved and no human intervention from Cass is required.
So, what benefits did RockTennn achieve by outsourcing freight audit? Chris says that their largest savings buckets, in descending order of importance, were the following:
First of all, RockTenn has much better data to use in its annual procurement process with carriers. “The lowest lane rate is not the be all and end all,” said Chris. RockTenn now knows the true transportation landed cost by lane by carrier. Cass has metrics that help RockTenn measure accessorials not known at the time of shipment – e.g., layovers, redelivery fees, a truck ordered but not used by a plant. These unplanned accessorials can make a carrier that appears to have the lowest lane rates be more expensive than a rival. Billing accuracy is now on RockTenn’s carrier scorecard, along with on-time delivery and other carrier management metrics, and it is a discussion point during RockTenn’s quarterly business review meetings with carriers.
Secondly, examining these unplanned accessorials provides RockTenn with data that it can use for continuous improvement exercises. If a specific plant is experiencing high levels of a certain type of unplanned accessorial fee across multiple carriers, then the fault lies with the plant, not the carriers. At a plant where RockTenn was experiencing high detention fees, the company implemented a dock door scheduling system and solved the problem.
The most obvious place where freight audit and payment saves you money is actually only the third largest ROI bucket for RockTenn. Initially, the company estimated that it was probably overpaying its total freight bill by a few percent. Cass’s services virtually eliminated those overpays, and the savings paid for Cass’s services many times over. On an ongoing basis, once you have better data and continuous improvement processes in place, the reduction in the total freight bill is about half a percent per year.
There were also administrative bill payment efficiencies. The cost for RockTenn to pay an invoice is now less than a dollar per invoice. Prior to this, while it is nearly impossible to calculate exactly what the company was paying because its decentralized transportation management process was so complex, the cost per invoice was clearly many times more expensive than today. Additionally, digitally-scanned EDI invoices are now stored by Cass for seven years, a legal requirement for public companies under Sarbanes Oxley legislation.
Finally, and Chris did not attempt to quantify the savings here, having Cass doing freight audit helped RockTenn clean up its data. This allowed the company to implement Transplace’s TMS more quickly and inexpensively, and thus garner the savings from centralized transportation planning more quickly.
In conclusion, outsourced freight audit and payment has been one key factor in the great improvements RockTenn has made in its transportation processes.