Sunday, April 12, 2015

Benchmark Freight Costs vs. Actual Freight Costs Impact Your Margins!

One of the hot transportation topics I receive questions about from users is the question of how freight costs are used with a TMS, which is especially meaningful for industries such as the food and beverage industry where margins are razor thin and profitability many times rests on the freight landed cost.

On outbound and inbound freight, FreightMaster and Dynamics TMS keeps track of many types of costs, but 2 of the primary freight costs are as follows:

1) Benchmark or A/R: What we call the benchmark or the freight cost component is that your sales or marketing team has included in the cost of the product. If you show the freight cost on your product invoice (PPA), then that is considered the benchmark.

2) Actual or A/P: This would be the agreed upon transportation provider cost you agreed to pay for a specific order. This can be and often times is very variable depending on economic conditions and carrier capacities.

The net difference, positive or negative between Benchmark and Actual will determine if a particular order is loosing money or making money on freight and will definitely impact bottom line margins.

If your company is a user of transportation services, the ability to proactively evaluate freight profitability is essential to the company's financial well being. Regardless of what brand of TMS or possibly Excel spreadsheet you are using, consider this strategy as mission critical.

How is your company managing this process?