The Financial Dimension of Supply Chain Visibility [Episode Highlights]

Supply chain visibility and big data are hot topics and everyone is trying to figure out how to extract and analyze the data they have for better visibility and decision making. Financial data and visibility into the costs associated with shipping are critical to improving corporate financial performance.

To find out how having supply chain financial visibility can improve contract negotiations, and to learn how technology can help shippers gain financial visibility across global supply chains, I spoke with Larry Lewis, Kewill’s Senior Vice President, Americas on a recent Talking Logistics episode. Here’s what he shared:

In a recent webcast we discussed the overall importance of supply chain visibility, but today I want to dive deeper into a dimension of supply chain visibility that sometimes gets overlooked: financial visibility. Let’s start with a basic question: what is financial visibility from a supply chain perspective? What data/information are we talking about?

When most people talk about supply chain visibility it’s from the perspective of having full visibility from PO to proof of delivery. Total cost management is just one part of supply chain visibility, but a very important part based on the financial impact that shipping has on the organization. The data we’re talking about is carrier invoice data. Financial visibility is just one slice of the pie and it covers the total cost or post-shipment expenses associated with your supply chain or delivery network. This view of your spend can be defined as spend management, depending on the way the information is used within the organization, and the reason it’s so important is because financial visibility can be a competitive advantage in today’s marketplace. Knowing your costs across your entire network and having the ability to slice and dice that data can provide you with valuable insight to improve all aspects of your business.

Is getting an accurate view of Total Landed Cost or Total Cost to Serve the main objective, or are there other business benefits associated with having timely and accurate financial visibility?  

Total Landed Cost (or Total Cost to Serve) is one of the objectives, but there are several other aspects to the business that can benefit from having timely and accurate financial data. Within contract negotiations, for example, or carrier mode selection or mode optimization, there’s the opportunity for continuous process improvement. One of the things that people don’t often think about is fraud detection. If you think about it in terms of Total Cost Management/Spend Management, when you start to talk about things like contract negotiation, having better insight into your spend, and understanding the metrics around it, all of which obviously provides valuable insights and helps you with those negotiations.

A lot of times what happens is a natural bifurcation within the organization that’s defined by organizational silos. This occurs when someone who is in the shipping department may not be communicating back to A/P or procurement and the knowledge needed to really negotiate contracts to the best benefit of the company isn’t being shared. This is where financial visibility – especially from an accounting or procurement perspective – plays into the organization.

The other aspect is carrier and mode optimization. From a spend perspective, in terms of post-shipment costs or invoices, you can see what types of carriers you’re using, and then which modes or service types are being utilized. This presents a great opportunity to reduce costs because the reality is that the difference between a standard overnight and a priority overnight or a next-day A.M. or next day afternoon could be as much as 20 percent. So just being able to provide behavior modification through education and awareness presents an opportunity to save money and improve the bottom line.

There’s also process improvement. Obviously as you start to implement controls and put metrics in place, you gain the opportunity to improve different processes within the organization and across the supply chain. One of the modes that people often talk about is expedited service, or next-day early A.M., and many don’t realize how often that service is being utilized. That’s typically a non-discounted service, so having the awareness of and being able to drill down into the data, and to talk to the shippers that are using those types of expedited services, is a great way to reduce costs.

Fraud detection is another key aspect. Many times in a shipper’s environment, people are dealing with the same shipping volume on a weekly, monthly, or annual basis, and it’s really only when you see these spikes or peaks and valleys that people drill into the spend to understand it. Having the continuous visibility and having timely and accurate data, really gives you the opportunity to identify fraud because embedded in your spend may be misuse, where you’ve handed your account out to a third party to let them ship on your behalf, and where now they’re continuing to use that account. Fraud also includes instances where paper invoices or account numbers have been leaked and are now being used by people for fraudulent means, where they’re trying to abate shipping costs and put those costs onto you. These are just areas for improvement opportunity and to reduce costs and it all comes through this one aspect of supply chain visibility that we’re talking about – financial visibility.

What additional challenges do companies with global supply chains face?  

The larger the geographical footprint is, the greater the complexity. That’s sort of the common denominator. It can be domestic or international diversity, but they both add to the complexity in terms of the carrier invoice perspective. As carriers are added to the delivery network, new terms and conditions are added along with new carrier nomenclature. The difficulty lies in mapping the freight and assessorial fees from all of the carriers to a format that can then be normalized and analyzed to answer the question, what is our total cost and spend over the organization?

Because of this geographical and carrier diversity, and because each of the individual freight or parcel carriers has its own nomenclature for service and mode type, it really creates difficulty in truly providing apple-to-apple comparisons for carriers within the network. The data must be structured in order to be able to analyze it from a total cost perspective, not to mention the difficulty in associating all of the duties and taxes back to the shipment, to obtain that landed cost or total cost to serve. This is where financial visibility plays a significant role. It’s truly being able to align your metrics with your corporate strategy to help you achieve your goals.

What questions should shippers ask themselves to assess whether their financial visibility is best-in-class or needs improvement?

Watch this short clip for Larry’s response:

I encourage you to watch the full episode for additional insights and advice on this timely and important topic. Then post a question or comment and keep the conversation going!