Rate Audit - Gold in the Supply Chain

In today’s current economic malaise it is ever important for companies of all sizes to identify new ways that they can help their operations run more efficiently. For companies that distribute or move products, which encompasses just about everybody, a mechanism to help facilitate more efficient operations is instituting more disciplined rate audit procedures. Known by a host of terms, instituting a disciplined rate audit program for your company can have profound effects.

At Response Logistics, our definition of rate audit centers on the simple notion of a company ensuring that their cost accrual (cost estimate) matches with their actual cost received (invoiced amount).  In the supply chain context this cost estimate would include such normal cost items as transportation, warehousing and accessorial charges.  At the surface this would appear to be incredibly simple but, in actuality, implementing a rigorous and disciplined rate audit procedure can be very complex and unwieldy. The challenges of traditional rate audit in the supply chain occur because of key factors such as:

1. Chaotic contracting processes in securing transportation & warehouse rates. Often in the supply chain the procurement department may be procuring quickly or in a spot quote fashion and not be in the same corporate office or in good communication with the finance team.  This lack of integration with the finance team can therefore lead to a mentality of “pay the vendor first, ask questions later”.
2. Poor data integration. Adding insult to injury is the fact that many companies have silos of data.  This could include the transportation team having an Excel template of all of their freight rates while the finance team is using a standard Oracle Finance module for cost accruals & standard invoice tracking.  Excel is great but in some transport environments the spreadsheet changes weekly along with other market determined variables such as fuel indices ( On-Highway Diesel), and security or toll related accessorials.
3. Myriad of variables. The cost accrual, depending on the business and the cost activity can be highly complex with many variables included.  These variables that all play into the ultimate expected cost for an order might be fuel, mileage, wait time, routing of order and on and on.

So what is a company caught in this chaos of data and rates to do?  I believe that a smart approach is to look at the below checklist and identify whether instituting a rigorous rate audit process is something that your organization is ready for.

1. Establish rigor around contracting process (define the contracting procedures of the organization)
2. Document all current rates, even accessorial related items in highly granular fashion for entry into database system
3. Create technical methods to quickly calculate cost estimates based on ongoing order activities of the operation
4. Integrate cost estimate data with actual cost experience. (this requires collaboration between operations and finance teams)
5. Get vendors and internal teams onboard with new processes and expected outcomes
6. Implement and monitor

The road to more rigorous and disciplined rate audit is not easy.  It requires technology resources with deep understanding of systems, databases and integrations.  It also requires the right supply chain expertise and financial expertise to marry the technical world with the operating world.  If your organization is not yet ready to undertake such a project I would recommend you contact a company like Response Logistics that has expertise in assessing, designing and implementing world-class rate audit programs.  The payoff can be astounding.  One of the greatest benefits to implementing a rate audit program is often times over payments can be retroactively pursued from your vendors resulting in real dollars right back to your company’s bottom line.

Clearly when it comes to rate audit, there “is gold in them there hills”.

For more information on Response Logistics and to receive information on how our company can help you implement a comprehensive rate audit program please fill out the below form:

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