Whitepaper transportation procurement_payment

Transportation Procurement and
Payment
Gain Control over Spend

February 2010
Bob Heaney

~ Underwritten, in Part, by ~

Transportation Procurement and Payment: Gain Control over Spend
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Executive Summary
Through survey-based research conducted in January 2010 involving 236 Research Benchmark
respondents, this Aberdeen Group benchmark report investigates the key Aberdeen’s Research
capabilities that make transportation procurement and payment an Benchmarks provide an in-
important strategic initiative in today's economy. Given the pressures being depth and comprehensive look
faced by today's transportation organizations, this report details how Best- into process, procedure,
in-Class shippers have leveraged transportation spend management methodologies, and
solutions together with process improvements to keep costs under control technologies with best practice
and maintain high levels of carrier and freight performance. identification and actionable
recommendations

Best-in-Class Performance
Aberdeen used the following four key performance criteria to distinguish
Best-in-Class performers with respect to transportation procurement and
payment. They achieve:
• 5.71% year-over-year decrease in baseline freight spend (per unit
handled)
• 95.45% of carriers are compliant with their contract cost
• 94.7% of carriers are meeting their SLA routing compliance
• 2.84 days to process a freight invoice from receipt to payment
“We’re optimistic that we can
Competitive Maturity Assessment save $3 to $4 million dollars in
Survey results show that the firms enjoying Best-in-Class performance reduced contract and
accessorial rates.”
shared several common characteristics. They are:
~ Gregg Bostick, Vice President
• 1.85-times as likely as Industry Average, and 4.3-times as likely as of Transportation, Pinnacle
Laggards to have a centralized spend management platform in place Foods
capable of multi-language and multi-currency
• 1.6-times as likely as Industry Average, and 6-times as likely as
Laggards to use an electronic routing of a TMS solution for daily
carrier selection
• 1.3-times as likely as Industry Average, and 1.43-times as likely as
Laggards to have a single person or department manage
transportation spend globally
Required Actions
In addition to the specific recommendations in Chapter Three of this
report, to achieve Best-in-Class performance, companies must:
• Begin improving transportation spend management by automating
either contract procurement or freight audit and payment
• Complete the spend management loop to gain control over spend
• Consider community benchmarking for even greater reduction of
contracted rates

© 2010 Aberdeen Group. Telephone: 617 854 5200
www.aberdeen.com Fax: 617 723 7897

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Table of Contents
Executive Summary....................................................................................................... 2
Best-in-Class Performance..................................................................................... 2
Competitive Maturity Assessment....................................................................... 2
Required Actions...................................................................................................... 2
Chapter One: Benchmarking the Best-in-Class.................................................... 4
Business Context ..................................................................................................... 4
The Maturity Class Framework............................................................................ 5
The Best-in-Class PACE Model ............................................................................ 6
Best-in-Class Strategies........................................................................................... 7
Chapter Two: Benchmarking Requirements for Success.................................10
Capabilities and Enablers......................................................................................14
Chapter Three: Required Actions .........................................................................23
Laggard Steps to Success......................................................................................23
Industry Average Steps to Success ....................................................................23
Best-in-Class Steps to Success ............................................................................24
Appendix A: Research Methodology.....................................................................26
Appendix B: Related Aberdeen Research............................................................28
Featured Underwriters..............................................................................................29
Figures
Figure 1: The Pressure to Improve Transportation Spend Management ........ 5
Figure 2: Best-in-Class Strategic Actions................................................................. 7
Figure 3: Management's Directives for Creating Change ..................................10
Figure 4: A Single Point of Control for Increased Flexibility ............................15
Figure 5: Savings Start With Data Visibility and Access.....................................16
Figure 6: Metrics that the Best-in-Class Use to Measure Carrier
Performance .................................................................................................................17
Figure 7: Metrics that the Best-in-Class Use to Measure Internal Compliance .18
Figure 8: The Transportation Closed Loop Process ..........................................19
Figure 9: Technology Being Leveraged by the Best-in-Class.............................20
Tables
Table 1: Top Performers Earn Best-in-Class Status.............................................. 5
Table 2: The Best-in-Class PACE Framework ....................................................... 6
Table 3: The Competitive Framework...................................................................12
Table 4: Key Knowledge Management Differentiators ......................................16
Table 5: The PACE Framework Key ......................................................................27
Table 6: The Competitive Framework Key ..........................................................27
Table 7: The Relationship Between PACE and the Competitive Framework
.........................................................................................................................................27


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Chapter One:
Benchmarking the Best-in-Class
Business Context
Best-in-Class utilize highly
Companies have been managing complex transportation procurement and
automated technology:
payment processes for a long time - they have been evolving and maturing
since the 1980's. How well those processes were being managed and the √ 60% TMS routing guide for
overall cost to the company has suddenly become more important from a day-to-day carrier selection
corporate standpoint. In Aberdeen's October 2009 report, Integrated decisions
Transportation Management: Improve Responsiveness with Real-Time Control of √ 53% specialized freight audit
Execution, almost 65% of respondents indicated that managing transportation and payment tool
and shipping costs was one of the biggest challenges facing their
organization. The credit crunch and volatile fuel charges caught many √ 34% (TMS) transportation
organizations by surprise and they lacked sufficient processes to manage the procurement module
changes effectively. This sudden shift in economic drivers still continues to
be a concern and is one of the key reasons behind the pressures facing
many logistics executives. In addition, the lowering of demand from end
consumers has resulted in several shippers scrambling to lower their
production and in turn lower their shipments to regional distribution
centers, customer warehouses, etc. The top strategy for 47% of
respondents from a survey of 180 companies (from the October TMS 2009
study) was to "renegotiate contracts with carriers" where Best-in-Class
companies were 1.7-times as likely as Laggards to take this action – leaving
ample room for improvement.
Not only have volatile freight costs and shipping charges forced many
executives to panic and throw more resources at trying to solve the
problem, but more groups within the organization are suddenly seeing the
true costs behind transportation and are creating mandates to try and bring
it under control. As shown in Figure 1, over one-third of the respondents
are in a situation where not only is more of the company aware of the cost
and service impact of transportation on the overall supply chain, but they
are now being faced with the company executives asking for something to
be done about it. Thirty-five to forty-five percent (35% to 45%) of these
executives are looking for process and technology improvement in
transportation payment and procurement in the next 12-months.


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Figure 1: The Pressure to Improve Transportation Spend
Management

Volatility of freight costs and/or f uel
50%
surcharges

Increasing awareness of the cost and
43%
service impact of transportation

Corporate mandate to improve or
30%
f ormalize transportation spending control

Sourcing complexity due to increased
24%
globalization / low-cost country shif ts

Customers demanding f aster and more
18%
f requent deliveries

0% 10% 20% 30% 40% 50% 60%
Percentage of Respondents, n = 236
Source: Aberdeen Group, February 2010

This can be even more of an issue for companies which have very thin profit
margins, where operational efficiencies in the distribution process can be
critical. But the complexity of the global supply chain and the scale of
inbound and outbound spend control demands a tighter synchronization of
both the procurement and payment aspects of transportation management.

The Maturity Class Framework
Aberdeen used four key performance criteria to distinguish the Best-in-
Class from Industry Average and Laggard organizations. Table I provides
companies with a framework to benchmark their performance against the
four classifications.

Table 1: Top Performers Earn Best-in-Class Status
Definition of
Mean Class Performance
Maturity Class
5.71% year-over-year decrease in baseline freight
spend (per unit handled)
Best-in-Class: 95.45% of carriers are compliant with their contract
Top 20% cost
of aggregate 94.7% of carriers are meeting their SLA routing
performance scorers compliance
2.84 days to process a freight invoice from receipt to
payment


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Definition of
Mean Class Performance
Maturity Class
Industry Average: 88.45% of carriers are compliant with their contract
Middle 50% cost
7.11 days to process a freight invoice from receipt to
payment
Laggard: 50.45% of carriers are compliant with their contract
Bottom 30% cost
10.04 days to process a freight invoice from receipt
to payment

The Best-in-Class PACE Model
Leveraging technology is not enough to drive performance improvements
across an organization. To achieve corporate goals that drive efficiencies
and cost-savings around transportation spend requires a combination of
strategic actions, organizational capabilities, and enabling technologies that
can be summarized in Table 2.

Table 2: The Best-in-Class PACE Framework
Pressures Actions Capabilities Enablers
Volatility of Improve our Overall Automated data conversion
freight costs internal ability to Procurement and payment are both automated Electronic routing guides
and/or fuel analyze freight and fully integrated Transportation procurement
cost spend Measure carrier compliance to contract by and payment module of a
surcharges Improve our invoice accuracy TMS
internal ability to Transportation procurement managed globally Specialized freight audit and
source and procurement tool
Procurement
negotiate freight
Electronic invoice presentment and payment with Spend analytics
rates
carriers 3PLs, LSPs, or freight
Incremental, multi-round, or expressive bidding companies with
Freight audit and payment transportation procurement
and payment or freight audit
Formal root cause analysis for repeat invoice
services.
errors
Tracking of total freight cost including
accessorials
Measure carrier compliance to contract by on-
time delivery

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Best-in-Class Strategies
Fast Facts
Consistent with freight costs and volatility being the top two key pressures
among respondents, companies are focusing their strategies on controlling √ Companies that have less
spend. Best-in-Class organizations are 1.3-times more likely than Industry than $10 processing cost per
Average and Laggard companies combined to be pressured by executives to invoice are more than twice
as likely as their peers to use
improve transportation spend control. In response to both the external and
a specialized freight audit and
internal pressures, most companies are planning to attack individual pieces payment tool
of the spend management process (Figure 2).
√ Companies that have
Figure 2: Best-in-Class Strategic Actions reduced contracted freight
rates are twice as likely as
their peers to use a
Automate data collection and analysis 44% specialized transportation
46%
on f reight spend / updates to rate tables 41% procurement tool

Automate ability to source and negotiate 44%
f reight rates and award optimal carriers 42%
32%
Enf orce adherence to routing guide 30%
/ convert bid responses to rate tables 21%
20%
Collaborate and synchronize data with 28%
26%
carriers, suppliers, and trading partners 14%
Tie transportation, carrier selection, 22% Best-in-Class
17% Industry Average
audit, and payment together in one process 15% Laggard

0% 10% 20% 30% 40% 50%

Without some level of automation, auditing 100% of freight invoices can be
a labor-intense process, and administrative costs eat away at whatever
monies are recovered due to closer scrutiny of invoices. Companies that
don't posses tools to assist with the process either throw labor at the
problem, or choose to only audit a small percentage of freight invoices. The
former solution is very expensive; the latter fails to identify invoicing errors,
and, more importantly, fails to provide an accurate shipment history
database that can be used to improve the entire spend management
process. A shipment history that only contains total cost on an invoice, and
is not broken down by accessorial charges is of limited benefit when
analyzing ways to improve network efficiency.

Closing the Loop
Best-in-Class companies in this study are three times as likely as their peers
to practice closed loop transportation spend management, as evidenced by
their achieving both automation and integration of procurement and
payment activities. Automation and integration are key characteristics
because they allow data to flow from step to step in repeatable processes
and from one stage to the next across the strategic actions depicted in


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Figure 2. Industry Average and Laggard companies are 2.5-to 3-times more
likely to have manual processes in place, or to have automated one, but not
both of the key areas of spend management.
Interestingly, most companies are in a situation where they have automated
their audit and payment processes in some way, but have no similar levels of
automation in procurement. This is often due to the fact that for many
companies, transportation procurement is not centralized. It is performed at
the local or department level based on legacy carrier relationships, and
managed through the use of rudimentary tools like spreadsheets. Audit and
payment are more likely to have at least a base level of automation due to
the fairly widespread use of electronic invoice presentment and payment
technology, as well as companies' greater propensity to work with managed
services providers in this area.
Achieving a closed-loop system is usually a multi-step transition (see Figure
8 for an illustration of this system). Recognizing that procurement and
payment are unique functions in most companies, this report expands upon
these two primary categories at the front and back ends of transportation
spend, highlighting Best-in-Class methods for managing each.

Aberdeen Insights — Strategy

Best-in-Class companies are more likely to be honest with themselves about
the importance of the auditing process, and realistic about their own abilities
to do it well. Consequently, these companies often choose to outsource
freight audit and payment, either as a permanent solution, or as an interim
step until such time as they can improve their internal ability to do it. This is
a strategy that has produced results, as evidenced by the fact that Best-in-
Class companies that outsource freight audit and payment were more likely
than their peers to posses the following capabilities through their managed
service providers:
• Practice electronic invoice presentment and payment with carriers
• Practice formal root cause analysis for repeated invoice errors
• Automatically audit invoices against electronic rate tables
• Tracking of total freight cost including accessorials (e.g. detention
and stop-off charges), fuel charges, and invoice dispute costs
This is a testimony to the fact that managed service providers have made
strides in improving their capabilities to serve the market.
continued


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Aberdeen Insights — Strategy

Understanding the actual spend on transportation, including drilling down to
all accessorials and surcharges is the most important first step to bringing
spend under control and creating more strategic value. Despite the value of
this information and its impact on the strategic actions behind transportation
sourcing and procurement decisions, many organizations continue to rely on
"perceived" costs versus actual costs and closing the loop on spend.
Leveraging technology to track, analyze, and provide visibility to critical
transportation spend data can be a differentiator and lead to reducing costs.
Understanding actual costs by route, by carrier, or by the options available
can be beneficial when planning and scheduling shipments. In addition to the
value of data in the procurement process, leveraging this information and
visibility in the audit and payment process can save hours of time and
significantly reduce payment errors. The visibility of payment errors,
improving payment compliance, and the ability to manage the audit and
payment process strategically can have an additional costs savings impact.

In the next chapter, we will see what the top performers are doing to
achieve these gains.


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Chapter Two:
Benchmarking Requirements for Success
While organizational changes can create a positive impact they should rarely How the Best-in-Class are
be enacted until an organization has first focused on process and Evaluating Freight Rates:
technology. This approach is borne out in our survey results, as Best-in- √ 84% compare to
Class companies were more likely to provide recommendations for process competitors rates for pricing
(67%) and technology (64%) than for those concerning organizational
change. √ 55% compare carries to
internal historical pricing
Figure 3: Management's Directives for Creating Change √ 43% utilize community data
from peers

Recommendations f or 67%
Process Changes 69%

Recommendations f or 64%
Technology Enhancements 57%

Recommendations f or 46% Best-in-Class
Organizational Changes 44% All Others

0% 10% 20% 30% 40% 50% 60% 70% 80%


The following case study is an example of how one company has taken
control of their transportation spend, and managed to turn the corner to
become Best-in-Class.

Pinnacle Foods Chooses Transportation Suite Starting With
Audit and Payment

Pinnacle Foods is a large food manufacturer with household brands such
as Duncan Hines, Vlasic, and Swanson. The company had been
completely outsourcing its transportation execution as well as audit and
payment to a managed service provider, but was only enjoying limited
success. So shortly after hiring a new Vice President of Transportation,
the company chose to set out on the path of closed-loop transportation
spend management to better handle their $125 million USD in annual
spend.
continued


Page 11

Pinnacle Foods Chooses Transportation Suite Starting With
Audit and Payment

Pinnacle chose the application suite approach, with a single software
vendor providing the various components in the spend management
wheel. Pinnacle chose a TMS with a Software-as-a-Service (SaaS) model,
and began the project by implementing tactical planning and execution.
Because Pinnacle had a closed-loop vision in mind, the company decided
to proceed next with improving the audit and payment side of the wheel.
The Return on Investment (ROI) in this area might be less than it would
be to improve procurement, but Pinnacle knew that the data that
resulted from a better audit and payment process would allow them to
realize those procurement savings to an even greater level—they would
just have to wait a little longer to see it.
The company chose to bring their outsourced audit and payment process
in-house by using a freight payment module from their TMS provider.
Pinnacle also chose to implement self-invoicing. After the carrier submits
an electronic proof of delivery to Pinnacle via the online system or
through EDI, they are given an additional five days to submit any
accessorial charges that may have been incurred. At that point, Pinnacle’s
TMS calculates the amount the carrier is due and makes a payment.
Carriers are normally paid net 28 days, but Pinnacle agrees to pay within
seven days if the carrier is willing to offer a discount for such services.
The results of this process have been significant—Pinnacle has saved
$120,000 USD annually over paying a third party provider to perform
this service, and they have not had to commit any additional
administrative labor to audit and payment.
To close the loop, Pinnacle chose the same TMS provider to host their
first ever national transportation bid. Since the company already
automated their audit and payment process, a rich database of freight
spend data exists so that Pinnacle can host a very accurate bid process. In
addition, their on-demand TMS provider is making use of community
spend data to identify areas where Pinnacle is paying rates that are much
higher than their peers. The TMS provider was able to bring an additional
70 carriers to the bid table who might offer more competitive rates in
those areas.
“For us, it made sense to use a single technology platform for as much of
the process as possible,” says Gregg Bostick, Vice President of
Transportation for Pinnacle. “Our existing carriers are already
communicating with us electronically through our TMS, so it was logical
for us to use the same set of tools to host our freight bid. We’re
optimistic that we can save $3 to $4 million dollars in reduced contract
and accessorial rates.”


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Competitive Assessment
Aberdeen Group analyzed the aggregated metrics of surveyed companies to
determine whether their performance ranked as Best-in-Class, Industry
Average, or Laggard. In addition to having common performance levels, each
class also shared characteristics in five key categories: (1) process (the
approaches they take to execute daily operations); (2) organization
(corporate focus and collaboration among stakeholders); (3) knowledge
management (contextualizing data and exposing it to key stakeholders);
(4) technology (the selection of the appropriate tools and the effective
deployment of those tools); and (5) performance management (the
ability of the organization to measure its results to improve its business).
These characteristics (identified in Table 3) serve as a guideline for best
practices, and correlate directly with Best-in-Class performance across the
key metrics.

Table 3: The Competitive Framework

Best-in-Class Average Laggards
Process Strategic bid allocation based on business performance of
carriers
73% 47% 21%
Practice multi-round bidding
58% 40% 30%
Practice incremental bidding as requirements change between
bid contracts
52% 29% 16%
Centralized transportation spend management platform in
place, capable of multi-language, multi-currency
52% 28% 12%
Organization A single person or department is responsible for managing all
spend activities across all of our departments/divisions
70% 54% 49%
Transportation procurement managed globally
69% 44% 34%
Knowledge Tracking of total freight cost including accessorials (e.g.
detention and stop-off charges), fuel charges, and invoice
dispute costs
64% 54% 33%
Real-time ranking and analytics visible during procurement
selection process
56% 34% 17%
Over 90% of the company's transportation invoices are
currently audited
44% 31% 19%


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Best-in-Class Average Laggards
Technology Utilizing electronic data conversion for:
65% - electronic 44% - electronic 33% - electronic
invoice invoice invoice
presentment and presentment and presentment and
payment with payment with payment with
carriers carriers carriers
57% -Electronically 37% -Electronically 19% -Electronically
assisted bid assisted bid assisted bid analysis
analysis analysis 10% - Electronic
54% - Electronic 29% - Electronic bid allocation
bid allocation bid allocation optimization to
optimization to optimization to award lanes
award lanes. award lanes.
Utilizing technology components:
60% - TMS routing 36% - TMS routing 10% - TMS routing
guide for day-to- guide for day-to- guide for day-to-
day carrier day carrier day carrier
selection decisions selection decisions selection decisions
53% -Specialized 44% -Specialized 27% -Specialized
freight audit and freight audit and freight audit and
payment tool payment tool payment tool
34% -(TMS) 34% - (TMS) 13% - (TMS)
Transportation Transportation Transportation
procurement procurement procurement
module module module
Utilizing highly automated data conversion for:
50% - Audit and 32% - Audit and 12% - Audit and
payment of payment of payment of
truckload or less- truckload or less- truckload or less-
than-truckload than-truckload than-truckload
invoices invoices invoices
42% - Audit and 29% - Audit and 16% - Audit and
payment of parcel payment of parcel payment of parcel
carrier invoices carrier invoices carrier invoices
33% - 20% - 6% - Procurement
Procurement of Procurement of of truckload or
truckload or less- truckload or less- less-than-truckload
than-truckload than-truckload contracts
contracts contracts
Performance Practice online collaboration with carriers for invoice
exception handling
44% 29% 22%
Use incentive-based freight contracts
34% 20% 18%


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Capabilities and Enablers
Based on the findings of the Competitive Framework and interviews with end “By outsourcing our audit and
payment process we’ve been
users, Aberdeen’s analysis of the Best-in-Class shows that the key to taking
able to reduce our freight
control and managing transportation spend begins with gaining visibility to spend by more than $500k
upstream transactions and using that data as critical input to subsequent since 2006. We’ve even
activities from routing, audit and pay and back again to eventually feed future reduced our errors down to 12
procurement decisions. While many strides are being made here, well over to 15 last year out of the more
50% of all respondents are still relying on keying or manual processing for all than 15,000 bills we pay
facets of the transportation spend process, including: yearly.”
• Converting bid responses to contracts (78%) ~ Tim Knepple, Logistics
• Creation of RFPs for transportation bids (75%) Manager, JustRite
Manufacturing
• Inputting carrier bid responses to a bid analysis tool (68%)
• Converting freight contracts to rate tables (65%)
• Inputting freight invoices into accounting systems (56%)
It is often argued that automating processes first will bring better data
visibility; however many practitioners today are of the belief that getting
technology in place that provides data visibility is the most important step
because it's that data that will help determine what additional technology is
necessary to drive more efficiency. The combination of technology with
process, knowledge management and organizational changes will create the
most impact. Best-in-Class performers are much further ahead and have
clearly separated themselves from the pack through achieving a 22% higher
percentage level of carriers who are compliant with contractual cost
(95.45% Best-in-Class versus 74.14% of all other companies – Industry
Average and Laggard companies combined).
Process
It is important to select the right carriers and doing so can elevate the
carrier's and a company's overall attainment of both contract cost and
routing compliance. Top performers exceed 94% compliance (Table I) while
Industry Average do not exceed 88.5% and Laggards do not exceed 58%.
We see a key differentiator for the Best-in-Class: they are 1.5-times as likely
as the Industry Average and 3.5-times as likely as Laggards to utilize strategic
bid allocation based on business performance of carriers (Table 3). This
illustrates the principle that selection and knowledge are tightly linked - you
need visibility to performance data to both select carriers and then to
monitor/ensure contract compliance.
Additionally, working in silos can be detrimental to any process, with or
without access to valuable data. Collaboration internally and externally adds
value to the decision making process and puts even more power in the
hands of employees, letting them automate and inform decisions they're
responsible for, while continuing to extend the processes to involve more
stakeholders. The Best-in-Class have done a good job of increasing
collaboration in the bid process through 1) multi-round bidding, and 2)
following up with incremental bidding to create more flexibility and control
in transportation spend management (Table 3). Frequent collaboration with
carriers and trading partners in the bidding process is yet another advantage


Page 15

of top companies. Best-in-Class performers are achieving practice levels of
1.5- to 2-times higher than all others combined.
Turning attention towards how to streamline procurement and payment
processes, the focus should be on managing exceptions and improving data
conversion in spend management across the global supply chain. The Best-
in-Class are already doing more in utilizing global currency and multi-unit
data conversion as part of their solution with more than 50% practicing on a
centralized transportation spend management platform capable of multi-language,
multi-currency (Table 3). In an effort to take more control of transportation
spend and create more flexibility to avoid excessive charges, companies
should also investigate:
• Real-time ranking and analytics visible during procurement selection process
• Practicing online collaboration with carriers for invoice exception handling
• Use of incentive-based freight contracts
Organization
The freight audit and payment process is post execution - it can only ensure
conformance to contracts or inform future negotiations. It's clear that the
true value to an organization's transportation spend management is around
the sourcing and procurement of freight. As can be seen in Figure 4, the
Best-in-Class are doing more to centralize control and focus on a global
vision for transportation spend management, providing them with a much
clearer view of the true cost of doing business.
The Best-in-Class are also taking to heart the argument to outsource
components that are non-differentiators and have typically taken more
resources to manage as relationships have become more complex.
However, there is still room for some debate as many solutions have gotten
to the point where companies can now more effectively manage their own
freight audit and payment process to their own comfort level. Almost 45%
of respondents that currently are managing their own audit and payment
process have no plans to outsource any time soon. Both options should be
considered in detail when restructuring the organization.
Figure 4: A Single Point of Control for Increased Flexibility
Best-in-Class Average Laggard
“Our timelines were lengthy
70% 69% and required a lot of
54% collaboration between us and
49% 49%
44% the carrier. Now we can
34% 34% 33% 31% provide better visibility on our
25%
21% schedules and get more reliable
commitments and rates from
the carriers, creating a win-win
for both of us.”
A single person or Transportation Freight audit and All Freight Audit and
department is procurement managed payment managed Payment outsourced, ~ Max Beach, Logistics Manager
responsible for globally globally with no plans to at Northwest Pipe
managing all spend change
activities globally n = 236


Page 16

For companies that typically manage their own freight audit and payment,
without technology to automate and enable that process, the level of
complexity can only create more room for error. In the present study,
more than half of all responding companies reported handling either
procurement or payment manually. In the new world of global
transportation, the ramifications of errors are exacerbated and directly hit
the bottom-line when it comes to supply chain costs. Imagine having to
manually process hundreds or thousands of payments each month without
any automation in place to streamline the review and payment. Adding
headcount to tackle problems is not going to be an option; executives need
to re-evaluate the options available that don't include adding labor to
manage out-dated processes and to allow core resources to provide value
around analysis, not interpreting blurry faxes.
Knowledge Management
The Best-in-Class have done a better job of recognizing the value of data
and knowledge as part of a "closed loop" transportation management
process. This is illustrated by the level of current capabilities among Best-in-
Class performers as compared to all others regarding collaborative
knowledge to ensure competitive freight rates (as illustrated in Table 4).
Table 4: Key Knowledge Management Differentiators
Best-in-Class Industry Average Laggards
Performance measurements for competitive freight rates
90% - compare 84% - compare carriers 79% - compare carriers
carriers to their to their competitors' to their competitors'
competitors' pricing pricing pricing
56% - compare 55% - compare carriers 52% - compare carriers
carriers to their own to their own historical to their own historical
historical pricing pricing pricing
50% -utilize community 43% - utilize community 31% - utilize community
data from our peers data from our peers data from our peers
In order for companies to truly leverage their transportation spend data and
provide access for employees to leverage that information and make better
business decisions, the information cannot be kept on spreadsheets and
reside on local databases at each location.
Figure 5: Savings Start With Data Visibility and Access
Freight Audit and
"We really had no centralized
Payment Knowledge and
37% visibility to our transportation
Data are shared internally
33% spend. This was the first step
at the global level 29% we needed to make in order to
start the process of bringing
our spend under control.
Procurement Knowledge 33% Best-in-Class Without the visibility,
and Data are shared everything else we did would
31% Average
internally at the global
24% have been guess work."
level Laggard
~ Chris Cavin, Director of
n = 236 Transportation, RockTenn

Page 17

It is the level of sharing and visibility to detailed knowledge and its ease of
integration into the overall transportation selection and management
process that allows top companies to deliver higher levels of performance in
carrier contractual compliance and reduced cost. The gap between the
Best-in-Class and Laggards focuses on the ability to move beyond traditional
processes like:
• Manually processing bid and contract information with disparate
data from numerous sources including printouts, faxes, and copies
• Using spreadsheets to manage the bid process
• Overly labor-intensive or incomplete audit processes that fail to
match accurate activities and billing information
• Manual processes for monitoring contract agreements and actual
performance of carriers, often resulting in missed opportunities to
flag billing / contract errors that could reduce spend
• Lack of a means (other than labor-intensive data mining) to track
and analyze data from the audit process in order to improve /
negotiate relationships with carriers based on actual performance
or contract changes
Performance Management
With much of the focus being on data visibility and access as a key
component of any transportation management process, and how it becomes
a key input to closed loop transportation spend management; it is how
effectively companies use that data that can be a key differentiator. In Figure
6 and Figure 7, it's clear that the Best-in-Class have done an exceptional job
of setting up performance measurements with their carriers and internally
to ensure that key business goals are followed and lead to driving down
transportation spend.

Figure 6: Metrics that the Best-in-Class Use to Measure Carrier
Performance

88%
On-time delivery 88%
89%
80%
Invoice accuracy 71%
54%
74%
On-time pick-up 71%
54%
50%
Data quality 39%
29% Best-in-Class
Tender 44% Industry Average
acceptance rate 31%
14% Laggard

0% 20% 40% 60% 80% 100%

Page 18

Because more of the Best-in-Class have visibility to detailed transportation
spend data, they are better positioned to leverage that information in a
more dynamic fashion. This includes providing scorecards and
measurements at all points along the transportation spend process. For
example, it may be easy for companies, even with manual spreadsheets, to
track on-dime delivery. But the time to identify and utilize updated scores
for on-time delivery as well as invoice accuracy and other metrics during the
sourcing / tendering process is at risk with more complex situations, and
can have a dramatic effect on the ability to reduce overall costs.
It's not only important to understand carrier performance, but also to
understand internal compliance. Guidelines are in place for a reason and
ensuring that resources are using data to their advantage and making better
decisions is important to controlling costs.

Figure 7: Metrics that the Best-in-Class Use to Measure Internal
Compliance

77%
Payment time 64%
58%
57%
Volume commitments 68%
67%
36%
Invoice accuracy 51%
45%
32%
Data quality 31%
25%
32% Best-in-Class
Driver wait times 30% Industry Average
27% Laggard

0% 20% 40% 60% 80% 100%


Technology
The concept of technology enablement within a closed loop transportation
management platform is not new. Indeed this is very much in keeping with a
key finding of Aberdeen's research demonstrating that companies are
departing from thinking about transportation management in a linear format
and, instead, as a closed loop, with each step in the process feeding the
subsequent ones. Figure 8 depicts the "closed-loop spend management"
cycle, with the capabilities shown on the inner circle, and the enabling
technologies that drive integration and automation in the two outermost
circles. A common, but less effective alternative to the closed-loop concept
involves having the electronic flow of data cease at the audit and pay step.
The model shown in Figure 8 completes the loop by having the shipment


Page 19

history from the audit and pay step flow directly into a spend analytics step,
which is then used as a tool to create the request for proposal in the
procurement process.

Figure 8: The Transportation Closed Loop Process


Aberdeen research has found that companies take one of three distinct
approaches with acquiring/adopting enabling technology:
• A best-of-breed model
• A collaborative outsourcing model (leveraging third party providers)
• A single application suite.
The "best-of-breed" model involves the use of a combination of specialized
bid optimization tools, Transportation Management Software (TMS), audit
and payment applications, and spend analytics solutions to produce a
feature-rich platform of integrated applications. The outsourcing model
often leverages the same tools and process but involves an alliance with a
logistics service provider for procurement, audit/pay or both. Alternatively,
with a transportation management suite (single application suite approach),
the various steps in the loop are all offered by a single software developer.
In each case, the critical link to the individual processes is automated data
conversion to ensure that there is an efficient information exchange at each
step in the cycle.


Page 20

In almost every instance, companies that are able to leverage technology to
manage processes and remove the manual components of everyday tasks
are able to focus more on delivering value versus manually managing and
manipulating data. In using the Aberdeen methodology to analyze
technology usage, there continues to be greater adoption associated with
the Best-in-Class group and alignment with driving better performance in
key metrics. Across six different categories of technology usage (Figure 9),
over 40% of the Best-in-Class are taking advantage of opportunities to
automate as much of the processes as possible.

Figure 9: Technology Being Leveraged by the Best-in-Class

Best-in-Class Average Laggard
n = 236
65%
60%
57%
54% 53%
44% 44%
37% 36%
33% 34% 34%
29% 27%
19%
13%
10% 10%

Electronic invoice Electronically assisted Electronic bid TMS routing guide for Specialized freight (TMS) Transportation
presentment and bid analysis allocation optimization day to day carrier audit and payment tool procurement module
payment with carriers to award lanes. selection decisions

Electronic Data Conversion Technology Components


In each case under electronic data conversion, the Best-in-Class are 2- to 6-
times as likely as Laggards to have automation in place especially around the
sourcing and procurement process, updating and auditing rate guides, and
optimally awarding lanes via electronic updates.
Under technology components, they are again 2.5- to 6-times as likely as
Laggards to use extensions of TMS procurement solutions and specialized
freight audit and payment tools to speed and automate the front-end to
back-end of closed loop transportation process and enable tighter spend
control.
Respondents have identified four key criteria for making technology
adoption and investment decisions, three of which point to the fact that
organizations understand the value of these solutions and are insisting that
there is an ability to create more of an end-to-end process environment.
The four criteria are:
• Feature and functionality / capabilities (67%)
• Price (65%)


Page 21

• The ability to interface with existing technology / solutions (65%)
• Ability to extend functionality of existing solutions (52%)
Following features, "price" is a key requirement and at 65% it is important
to contrast this with another key finding – over 40% of all respondents feel
that these solutions are still too expensive up-front, or too expensive /
difficult to implement. For these companies much of the upfront costs and
lead-times can be substantially reduced. As depicted in the Pinnacle case
study earlier, and as discovered by many who have conducted the proper
due diligence, it is important to be aware of the variety of solutions available
today and the deployment options they provide. The evolution of SaaS and
on-demand offerings from most solution providers has delivered on the
promise to decrease these historical hurdles. Companies must invest the
time to educate their decision-making teams on the latest options in order
to complete the proper due diligence around these solutions.

Case Study: Northwest Pipe Company

Northwest Pipe Company is used to a lot of hands-on managing of their
business in manufacturing large industrial pipe. However, the hands-on
approach for managing transportation spend was suddenly not enough to
keep up with the changing landscape of transportation needs. “We took a
step back and realized that everything we were doing around managing our
transportation was completely manual,” says Max Beach, Logistics Manager
at Northwest Pipe. “We were managing a lot of paperwork and entering a
lot of manual data; we were just keeping up, not being strategic.”
Managing over 17,000 flat bed shipments per year in North America can be
difficult, especially when rates and charges are changing under your feet. It
was difficult to get a handle on exactly what contracts and commitments
were in place and what the true level of spend was at any point in time. “We
suddenly realized we had over 230 carriers but no idea if that was the right
mix,” said Beach. Bringing a technology solution on-board that removed the
manual processing and created online visibility was a catalyst for change.
With lengthy planning times for their projects, getting quotes from
carriers was difficult and required carriers to estimate extremely volatile
costs. “Our timelines were lengthy and required a lot of collaboration
between us and the carrier. Now we can provide better visibility on our
schedules and get more reliable commitments and rates from the
carriers, creating a win-win for both of us,” says Beach.
Northwest Pipe has been running their solution some time and after only
four months they’ve already seen tremendous improvement in the
transportation spend management process. Utilizing the technology and
services available to them from their spend management solution
provider, their RFP events are more strategic and have uncovered savings
they would not have been able to leverage in the past. “We’ve already
seen a 30% drop in total freight spend and our ROI dropped from 18
months to four months. We are finally leveraging transportation as a
differentiator and not a cost bucket,” concluded Beach.


Page 22

Aberdeen Insights — Technology

The adoption of technology to support the transportation spend
management process has grown steadily year-over-year. Because there's
been an increase in the awareness of the true cost of transportation and
more direction from the top down to do something about it, companies
are turning to vendors to help manage the complexity.
At the same time, if you break down the details of where the increase in
automation has occurred and where the focus has been, most companies
are directly engaged in analyzing key spend data and using it as part of a
more collaborative and dynamic bidding process, as well stressing
collaboration during the audit and payment process for improved root
cause analysis. To address these key areas many are looking to best-of-
breed solutions to fill these needs.
Best-of-breed solutions may be tailored for the needs of a particular
industry, or offer specialize features that fill a unique requirement.
Companies choosing this route should be aware that they will need to
take greater responsibility for application integration. Conversely,
Transportation Management Software Suites may offer all of the required
capabilities from a single vendor, but may not have certain best-of-breed
features. There is no right or wrong approach - but companies should
understand the trade-offs with each method and be comfortable with
them.
A company with limited resources might consider working with a vendor
that also offers managed services, one that has the ability manage the day-
to-day processes initially or can help run the first carrier bid. Then, if it is
desired, the shipper can wean itself off of the services and bring the
processes in-house. Still others have found success in outsourcing both
procurement and payment. The options are varied and successes are
found in each technology/management solution.


Page 23

Chapter Three:
Required Actions
Whether a company is trying to move its performance in transportation Laggard Reasons for Not
spend management from Laggard to Industry Average, or Industry Average Investing in Technology:
to Best-in-Class, the following actions will help spur the necessary √ 36% software integration is
performance improvements: too difficult / expensive
√ 33% upfront costs of
Laggard Steps to Success changing processes are too
• Integrate and automate. Over 45% of Laggard companies rely high
on spreadsheets to manage the procurement and payment √ 27% up-front costs of
processes. The delay in decision making and error rate associated
solution too high
with managing a manual paper trail can increase the underlying costs
of managing transportation spend.
• Focus on value-add instead of punching the clock. The
manual labor needed to manage paper processing of invoices is
driving up the cost of managing spend and Laggard companies are
expending the most at almost $24 per invoice. By automating or
outsourcing the audit and payment process, resources can be
utilized for more valuable activities like root cause analysis and bid
optimization.
• Incorporate a global view. Working to get control of
transportation spend data is the end-goal, however it's more
important to get visibility and organizational control across the
entire organization and remove the silos. Only 24% of Laggards have
data visibility at a global level, and only 6% can share that data with
external partners. Combining data into a global view will greatly
increase spend analysis value-add opportunities and sharing with
external partners will drive better performance.

Industry Average Steps to Success
• Continue to leverage technology investments. The adoption
of procurement and payment related solutions has increased by
roughly 50% in the last 12 months for the Industry Average and
there are new SaaS options out there. Continuing to rollout process
automation to free up resources and decrease the cost of managing
spend is the next crucial step for executives.
• Data analysis: the next frontier. Less than a third of Industry
Average companies are leveraging spend data visibility at a global
level. Automating the processing of spend data is less than half the
battle. Only 43% of Industry Average companies currently
benchmark rates against community/peer data to track key trends.
Leveraging transportation spend data and technology to automate
the RFP process can greatly reduce year-over-year contract spend.


Page 24

• Is outsourcing right for you? The argument continues as to
whether or not outsourcing is the best process improvement when
it comes to managing freight audit and payment. With more
complexity being associated with compliance guidelines and the lack
of time and resources available to manually audit and process
thousands of bills per month, outsourcing should be considered a
viable option. Only 35% of Industry Average companies are
outsourcing today.

Best-in-Class Steps to Success
“A key reason for our success
• Create closer partnerships with strategic carriers. Utilizing
has been that senior
data to improve collaboration with carriers can increase savings and management has allowed us to
improve contract rates. Less than 10% of the Best-in-Class are select the right tools for the
leveraging spend data visibility and sharing with external partners, job at hand.”
especially carriers. Sharing critical data can increase the
collaboration during the bidding process and provide carriers with ~ Ann Deming, Transportation
Manager for Dry Truckload
the opportunity to suggest alternative routes or negotiate rate
options, lowering overall costs for both parties. Freight, Unilever

• Implement scorecards to guide sourcing decisions. Once the
true costs of freight spend are uncovered, score carding at a higher
level can help drive further cost reductions. Rather than getting too
lost in the individual charges, placing a score on each route and
working to reduce the overall average cost per route can greatly
improve savings and overall spend management. Currently less than
30% of the Best-in-Class are attempting to negotiate all-in rates for
freight options.
• Enforce compliance measures that benefit strategic goals.
The Best-in-Class are utilizing more guidelines to measure carrier
compliance, and also tracking their own compliance levels. With
improved automation and data visibility there is an opportunity to
put more strategic measures in place (on-top of common measures
like on-time delivery or payment) to drive per-route scores and
balance transportation spend across all routes in an effort to drive
strategic business decisions. Currently, on-time delivery (92%) and
invoice accuracy (88%) are the top measures in place - others can
be advanced to these levels.
Aberdeen Insights — Summary

The volatility and complexity in the world of transportation will continue
to grow exponentially and every company is looking for ways to sustain
costs. With this the case companies are continuing to gain transportation
spend control.
continued


Page 25

Aberdeen Insights — Summary

Closed loop transportation spend management is no small undertaking,
but it is an important concept that should be the end goal of any
company struggling to contain logistics costs. In order to avoid tunnel-
vision, and focusing on only one link in the loop, it is necessary to have an
executive level sponsor to tie disparate departments and processes
together. Two very viable technology approaches are available (best-of-
breed and application suite) and companies should evaluate both routes
before deciding on the solution that is the best fit for their needs.
Additionally these capabilities are available through Logistics Service
Providers (LSPs). The benefits to having a closed loop process range from
reduced freight spend to lower administrative costs in the accounts
payable department - key accomplishments for any supply chain
executive. While their peers focus on cost cutting in more traditional
areas of logistics like load planning and routing guide compliance,
innovative companies can achieve Best-in-Class status by focusing on
transportation procurement and payment and tying these processes
together in an efficient closed-loop process.
The grace-period we're enjoying now will provide organizations around
the world with the opportunity to step back and ask the critical
questions about their own ability to fully understand supply chain costs
and whether they're still operating a fragmented or a strategic closed
loop transportation spend model. Many organizations want to think their
supply chain is strategic and that the cost of producing and / or delivering
products to their customers is in control and operating as efficiently and
cost-effectively as possible. Many of these same organizations were
caught off guard during the economic downturn and were not prepared
to answer the question on what was "actually" spent on transportation.
Supply chain executives want to be strategic and drive value. Getting
costs under control has always been a goal. Understanding and managing
transportation costs will be a significant competitive advantage going
forward; it will separate companies that survive from companies that
cease to exist.


Page 26

Appendix A:
Research Methodology
Between January and February 2010, Aberdeen examined the use, the Study Focus
experiences, and the intentions of more than 230 enterprises using Responding transportation
transportation procurement and payment solutions in a diverse set of management executives
enterprises completed an online survey
that included questions
Aberdeen supplemented this online survey effort with interviews with select designed to determine the
survey respondents, gathering additional information on transportation following:
procurement and freight audit and payment strategies, experiences, and
results. Responding enterprises included the following: √ The degree to which TPP
solutions are deployed in
Responding enterprises included the following: their operations and the
financial implications of the
• Job title: The research sample included respondents with the technology
following job titles: CEO / President EVP / SVP (16%)
√ The structure and
• VP (8%); Director (20%); Manager (37%); Engineer/staff (6%); and effectiveness of existing TPP
other (12%). implementations
• Department / function: The research sample included respondents √ Current and planned use of
from the following departments or functions: procurement, supply TPP to aid operational and
chain, or logistics manager (70%); IT manager or staff (7%); sales and audit activities
marketing staff other (12%); and senior management (7%).
√ The benefits, if any, that have
• Industry: The research sample included respondents from; been derived from TPP
Consumer Packaged Goods (CPG) (24%); OEM Equipment initiatives
Manufacturers (19%); Wholesale Distribution (18%); Retail (11%); The study aimed to identify
Services (5%); and other (5%). emerging best practices for
• Geography: The majority of respondents (68%) were from North TPP, and to provide a
America; Europe (16%) Asia-Pacific region (12%) and others (3%). framework by which readers
could assess their own
• Company size: Twenty-two percent (22%) of respondents were from management capabilities.
very large enterprises (annual revenues above US $5 billion); 25% of
respondents were from large enterprises (annual revenues above
US $1 billion); 34% were from midsize enterprises (annual revenues
between $50 million and $1 billion); and 19% of respondents were
from small businesses (annual revenues of $50 million or less).
• Headcount: Twenty-six percent (26%) of respondents were from
very large enterprises (headcount greater than 10,001 employees);
25% of respondents were from large enterprises (headcount
between 2,501-10,000 employees); 35% were from midsize
enterprises (headcount between 101 and 1001 employees); and 14%
of respondents were from small businesses (headcount between 1
and 100 employees).


Page 27

Table 5: The PACE Framework Key
Overview
Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities,
and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as
follows:
Pressures — external forces that impact an organization’s market position, competitiveness, or business
operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive)
Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the
corporate business model to leverage industry opportunities, such as product / service strategy, target markets,
financial strategy, go-to-market, and sales strategy)
Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people,
brand, market positioning, viable products / services, ecosystem partners, financing)
Enablers — the key functionality of technology solutions required to support the organization’s enabling business
practices (e.g., development platform, applications, network connectivity, user interface, training and support,
partner interfaces, data cleansing, and management)

Table 6: The Competitive Framework Key
Overview

The Aberdeen Competitive Framework defines enterprises In the following categories:
as falling into one of the following three levels of practices Process — What is the scope of process
and performance: standardization? What is the efficiency and
Best-in-Class (20%) — Practices that are the best effectiveness of this process?
currently being employed and are significantly superior to Organization — How is your company currently
the Industry Average, and result in the top industry organized to manage and optimize this particular
performance. process?
Industry Average (50%) — Practices that represent the Knowledge — What visibility do you have into key
average or norm, and result in average industry data and intelligence required to manage this process?
performance. Technology — What level of automation have you
Laggards (30%) — Practices that are significantly behind used to support this process? How is this automation
the average of the industry, and result in below average integrated and aligned?
performance. Performance — What do you measure? How
frequently? What’s your actual performance?


Table 7: The Relationship Between PACE and the Competitive Framework
PACE and the Competitive Framework – How They Interact
Aberdeen research indicates that companies that identify the most influential pressures and take the most
transformational and effective actions are most likely to achieve superior performance. The level of competitive
performance that a company achieves is strongly determined by the PACE choices that they make and how well they
execute those decisions.


Page 28

Appendix B:
Related Aberdeen Research
Related Aberdeen research that forms a companion or reference to this
report includes:
• Integrated Transportation Management: Improve Responsiveness with
Real-Time Control of Execution,October 2009
• No Excuses! Why Optimizing Transportation Management is Within the
Reach of Every Company, July 2008
• Achieving Closed-Loop Transportation Spend Management, January 2008
• The International Transportation Management Benchmark Report,
October 2007
• Integrated Transportation Management—How Best-in-Class Companies
View the World Differently, June 2007
• Winning Strategies for Transportation Procurement & Payment, February
2007
Information on these and any other Aberdeen publications can be found at
www.aberdeen.com.

Author: Bob Heaney, Senior Research Analyst , Supply Chain Management
(bob.heaney@aberdeen.com)
Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having
benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide
organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why
our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of
the Technology 500.

As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted
marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte-
Hanks (Information – Opportunity – Insight – Engagement – Interaction) extends the client value and accentuates the
strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com
or call (617) 723-7890, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com.

This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies
provide for objective fact-based research and represent the best analysis available at the time of publication. Unless
otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be
reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by
Aberdeen Group, Inc. (071309b)

Page 29

Featured Underwriters
This research report was made possible, in part, with the financial support
of our underwriters. These individuals and organizations share Aberdeen’s
vision of bringing fact based research to corporations worldwide at little or
no cost. Underwriters have no editorial or research rights, and the facts and
analysis of this report remain an exclusive production and product of
Aberdeen Group. Solution providers recognized as underwriters were
solicited after the fact and had no substantive influence on the direction of
this report. Their sponsorship has made it possible for Aberdeen Group to
make these findings available to readers at no charge.

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Page 30

U.S. Bank, a leader in corporate payments, is the world’s leading freight
payment provider. Through Syncada by Visa (formerly PowerTrack), a
business-to-business payment network offered by U.S. Bank, clients benefit
from a comprehensive global invoice processing and payment solution.
Integrated supply chain finance allows carriers to get paid sooner, while
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Company URL: www.powertrackglobal.com
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