connolly rtl freight guidelines
TRANSCRIPT
Retail FReight guidelines
A C O N N O L L Y L E A D E R S H I P D I S C U S S I O N
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Ensuring predictability of operations by monitoring compliance with routing guides and driving continuous process improvement
Businesses establish plans, policies, and procedures to create
a predictable environment that fosters efficient operations. To
ensure predictability in freight shipments, retailers develop and
maintain detailed routing guides to manage the flow of goods
from suppliers to their destinations. When the policies outlined
in the routing guide are not followed, a retailer must adjust to
handle these unanticipated events. Such disruptions to the
anticipated operation of the business cost time and money.
Picture yourself as the manager of a large retail store with staff scheduled
to receive a quantity of seasonal goods. Merchandise is due to arrive from
the distribution center in your weekly shipment in order to change the overall
store inventory from the summer to the fall season. Without prior
notification, two key suppliers fail to follow routing instructions, which
creates an interruption at the distribution center. This negatively impacts
the timing and costs associated with the store reset. Suppliers not following
shipping guidelines — by using the wrong carrier, method, or by shipping too
early or too late — create internal disruption. The careful planning is all for
naught — the staff needs to be reassigned and the employees and managers
involved are subject to needless aggravation.
One important tool that retailers should employ to help reduce deviations
from established policies and maintain an effective routing guide is the
freight audit. A freight audit can identify when and where deviations
occurred from the routing guide, recover funds due the retailer, and improve
the process by informing policy revision.
R E t A I L F R E I g H t g U I D E L I N E S
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When the policies outlined in the routing guide are not followed by suppliers, then the retailer has to adjust its processes to handle these unanticipated events.
n Audit transactions and recover costs associated with non-compliance
n Determine root causes of non-compliance
n Make appropriate changes to the routing guide
MONITOR COMPLIANCE
COMMuNICATE WITh vENdORS
REvISE ThE POLICIES
Figure 1. Actions to consider in reducing deviations from the routing guide
Monitoring compliance with the routing guide
Retailers have carefully crafted freight guidelines to establish predictability
of product delivery and meet their specific operational needs. By monitoring
supplier activity, retailers can take appropriate actions that can influence
future behavior and ensure higher levels of compliance. Auditing freight
transactions and recovering funds for non-compliance with the guide is an
effective way to provide feedback associated with routing guide violations.
All the areas of a freight audit, outlined in figure 2, have financial implica-
tions. Several, however, have greater operational implications than others.
Some of these categories include unauthorized expedited air shipments,
use of unauthorized carriers, and failure to consolidate shipments.
n ExPEDITED AIR ShIPMENTS
Merchandisers for large retail chains plan many promotional events each
season. In preparation for these events, the purchasing department
replenishes inventory to meet promotional event sales forecasts. The
order is placed, the goods received, and the promotional event is a huge
success. What could go wrong?
While this ideal scenario may play out with great reliability, it’s the small
percentage of times something does go wrong that causes the majority of
aggravation and yields less than optimal results.
Inevitably, due to manufacturing or other issues, certain suppliers will need
to expedite shipping to meet the timeline requirements of the retailer. The
supplier’s sales team agrees to ship via air and reimburse the retailer for the
cost difference between air and ground. Sounds perfect — or does it?
In any large organization, process deviations like this may slip through the
cracks since the agreement for freight reimbursement is typically manual
and most likely involves multiple internal communications. This combination
of variables leads to a higher likelihood of error; error that may not be
identified due to internal priorities and workloads.
What will take priority, planning the next promotion or verifying a previous
agreement was executed as intended? Now multiply this occurrence by the
number of store locations affected and the associated number of promotions
— and you can see the resulting reduced profitability of the promotion.
A C O N N O L L Y L E A D E R S H I P D I S C U S S I O N
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Auditing freight transactions and recovering funds for non-compliance with the guide is an effective way to provide timely feed-back associated with routing guide violations.
n UNAUThORIzED CARRIERS
To minimize business disruption, many retailers have developed a “core
carrier” program in which they partner with carriers that are best able to
meet their performance needs. This enables the retailer to negotiate steeper
discounts and reduce operating costs. In turn, suppliers are instructed to use
a specific carrier. Ultimately, companies want suppliers to use the carriers
that align with their logistics strategy, thereby reducing uncertainty and
enabling them to meet their goals. When unauthorized carriers are used,
negotiated discounts or rebates are lost, and the well planned process is
interrupted — resulting in financial loss and needless frustration
n FAILURE TO CONSOLIDATE
Consolidation of shipments not only reduces freight costs, but also reduces
the administrative and labor burdens on the retailer. As a result, most
routing guides require that suppliers consolidate shipments with the same
shipping point and destination. The “window” for this requirement may
vary. Same day is typical; however, the expectation to consolidate next day
shipments is also quite common. When freight isn’t consolidated as expected,
the handling workload multiplies — increasing the associated costs through-
out the system.
R E t A I L F R E I g H t g U I D E L I N E S
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AudIT AREAS OF SuPPLIER REvIEW
Advance Charges (PPD to Consolidator)
Collect should be Prepaid
Early/Late Shipments
Expedited Air Shipments
• Unauthorized • Agreement verification
Failure to Consolidate (LTL and Parcel)
• Same day shipments
Freight on Backorders
Freight on defective Returns
• Outbound • Inbound
Freight on Invoice (unauthorized or excessive charges)
Shipment Weight Accuracy
unauthorized or Non-contracted Carriers
unauthorized Shipments or Ship Point
When unauthorized carriers are used, negotiated discounts or rebates are lost, and the well planned process is interrupted — it results in hard dollar losses and aggravated employees.
Figure 2. Audit areas of supplier review
Communicate with vendors to understand root causes
Analysis of the audit findings should be a key element in the continuous
improvement of the routing guide. Looking at the annual claims data can
uncover major discrepancies that serve as the impetus to build better
business rules. Also compelling is the capacity of a longitudinal analysis,
from audits over a number of years, to provide insight into violations that
repeatedly occur. By reviewing patterns of violations, the retailer can better
understand which suppliers most
and least frequently require excep-
tions, and which functional areas
of policy have historic trends of
non-compliance.
One recommended way to isolate
root causes is to engage suppliers in
a discussion of audit findings. Using
claim examples enables suppliers to
fully understand routing guide expec-
tations and provides them with the
specifics needed to make necessary
process improvement changes.
Getting the supplier perspective before enacting policy changes is
fundamental to good relationship management. For example, historic trends
of non-compliance may not in fact be the sole fault of suppliers. The root
cause analysis may uncover some unintended consequence of a retailer’s
routing policy. If policy exceptions in an area are more the norm than the
exception, it could be an indicator that the retailer is leaving suppliers with
little option than to go outside of policy. Routing guides need to achieve a
healthy balance between ensuring predictability and being manageable for
the suppliers.
Experienced recovery auditors working with best-in-class claim tracking
and reporting tools can be an asset in the preparation for these supplier
discussions. The audit team can furnish supporting documentation in terms
of statistics and analysis. By consulting with their audit partners, freight
managers can develop a fact-based set of questions and discussion points
to guide the supplier conversations. A well-prepared discussion agenda can
help the retailer and supplier quickly and accurately hone in on the relevant
issues and come to consensus on the causes they need to address.
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Revising policies to improve the process
Policies are generally put in place for the purpose of obtaining or reaching
a particular outcome or goal. Once a policy or business rule’s effectiveness
comes into question, and the root cause is identified, changes can be formu-
lated and implemented. Before implementing a change, however, the risks
and consequences of the action must be evaluated from the perspective of
every stakeholder. Generally, some type of change management process
helps inform all stakeholders of the proposed policy amendments, gather
and incorporate feedback, implement the amendment, and communicate
the resulting changes back to the stakeholders. Following good change
management discipline will help ensure that changes are enacted and
yield intended results with minimum delay.
ensuring Predictability of Operations
Retail freight planners do an excellent job of aligning the
company’s routing guide to the operational requirements of
the organization while considering the challenges facing their
network of suppliers. despite these best laid plans, exceptions
will occur — the business environment is dynamic — and retailers
should be reasonable with suppliers if the explanation is under-
standable. however, limiting the number of exceptions through a
tight routing guide, the right supplier relationships, and ensuring
adherence with the spirit of the policies in place is important to
the orderly and efficient operation of the business.
R E t A I L F R E I g H t g U I D E L I N E S
6 C O N N O L LY I N C .
Analysis of the audit findings should be a key element in the continuous improvement of the routing guide.
to learn more
Contact your local Connolly audit principal, visit our website
at www.connolly.com, or call 800.530.1013.
about the author
James Stoia leads the Freight Audit Center of Excellence for Connolly Inc.
he has more than 20 years of experience in recovery auditing at major
retailers with significant experience in both transaction assurance and
contract compliance. he has conducted and supervised audits in various
retail categories including home improvement, department store, drug and
grocery chains. Mr. Stoia can be contacted at [email protected]
about the Connolly Freight Center of excellence
The Connolly Freight Center of Excellence brings together the best practices
of the freight audits Connolly has performed over our 30 year history. By
centralizing these audits, Connolly is able to provide our clients with the
most comprehensive, effective and efficient audit processes for the
management of their freight programs.
about Connolly
Connolly, Inc. is the world’s largest privately-held provider of recovery
auditing services. The company reviews contracts for non-compliance and
offers process improvement recommendations to mitigate future financial
losses. With more than 1000 employees serving nearly 150 clients, Connolly
reviews a trillion or more transactions annually, recovering over a billion
dollars a year in overpayments. The company maintains a 97% customer
satisfaction rating and is consistently listed on the Inc. 5000 list of the
fastest-growing private companies in America. Founded in 1979, Connolly is
headquartered in Atlanta, Georgia, with offices throughout the U.S., Canada
and the U.K.
Connolly is a trademark of Connolly, Inc. Copyright © 2011
A C O N N O L L Y L E A D E R S H I P D I S C U S S I O N
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