connolly rtl freight guidelines

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

1C O N N O L LY I N C .

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

2 C O N N O L LY I N C .

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.



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.



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.



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.



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



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