Back-office Efficiency Makes Winners (and Losers) in the Transportation Industry
HubTran COO, Brian Rudich, had this article published in the January 2017 issue of The Logistics Journal
Command Transportation started in 1999 with four people, then 15 years later, Echo Global Logistics purchased Command for $420 million. Such incredible growth was driven, at least in part, by excellent relationships with carriers on one hand and a highly efficient back-office on the other. The two were more closely related than you might think.
Carriers were the key to our success, so Command treated them like customers. We paid carrier bills within 24–48 hours of receipt, and word got around. Carriers liked doing business with Command. It was a leg up on our competition because, among other things, we could provide excellent service and capacity when other brokers could not.
Here’s where the back office comes in. Obviously for such a quick-pay policy to work we had to turn around carrier invoices very quickly. Our carriers were paid well before our shipping customers paid us, so cash-flow was a challenge. Our DSO (Days Sales Outstanding) was very important.
It takes two things to successfully maintain such a cash float. One is cash on hand or a good line of credit. The other is the technology to turn around customer invoicing as quickly and accurately as possible.
In 1999 we were a four-person shop. For a few years after that, most invoices were still paper. Email had not been widely adopted in logistics. When it was used, an emailed invoice might include four pieces of support papers in a single attachment. It was hard to break them apart. We almost preferred paper.
We scanned each piece of paper, one bill at a time, and then saved them by load number or other identifier. It was a two-step process. There was document storage, and there was bill-pay. They were completely separate.
As Command grew, so did our back office. We analyzed the workflow and saw we were touching the same document multiple times. We touched it when we opened the mail. We touched it when we scanned it. We touched it when we stored it. We touched it when we paid the carrier and again when we billed the customer.
By 2005, the ratio of paper to email had changed; now 90% of the carrier bills came in via email, but we still had to print out attachments to process them.
Soon we developed a way to work directly on computer monitors without printing documents. But whether paper or digital, all these docs still had to be sorted, grouped, validated, and data entered. We still had to ensure supporting documents were complete, that the information on one document corresponded with the others, and that the data entry was accurate. Working on a computer screen was an improvement, but still costly and error prone.
Over time, we automated payables more and more. We purchased a document management system to store images. We deployed (OCR)Optical Character Recognition to read those documents. We built thousands of templates to automatically recognize many types of documents and extract information from them.
Command processed upwards of 1,500 bills a day. Each load on average had 5 to 6 pieces of paper, typically an invoice, rate confirmation, bill of lading, lumper receipt, or other documents. That meant 7,500 pages that we went through on a daily basis.
When we added OCR and workflow software to the mix, Command had one of the most efficient back-office operations in the logistics industry. Those savings gave us a cost advantage versus the competition. Quick, accurate payment made Command the first-choice broker for carriers. That, in turn, enabled better service to shippers. These three factors enabled us to grow to$560 million in annual revenues.
Today 3PLs and brokers deploy wildly different levels of back-office automation. Some, both large and small, are still completely manual, the way Command started out in 1999.
Others have moved to the first rung of automation by implementing imaging systems that tag, store and retrieve documents, but don’t eliminate processing steps. More efficiency-minded brokers have document management systems that manage work flow in a more organized way by progressing the user through a sequence of steps such as identifying the carrier, tagging document types, and matching documents to the TMS load.
Finally, some 3PLs and brokers, like Command, have incorporated OCR into their document management systems in order to automatically identify these documents and pull critical information out of them.
Traditionally cost has been a big challenge in climbing these rungs of automation. For example, Command, like almost all transportation companies that utilize OCR, had to build a library of templates to recognize and interpret documents.
But that approach had drawbacks.
Given the thousands of truckers we used and how often the carriers and their invoice formats changed, building and maintaining these templates was an ongoing challenge. Hiring, training and retaining the highly technical team required to manage this operation was not easy. We also had to be extremely vigilant and efficient on managing the costs of IT installation, maintenance and hosting to ensure we got a return on our investment.
The other concern was ensuring that the system worked. No matter how many templates we built, this provided for only partial coverage and didn’t even touch non-invoice document types such as bills of lading, lumper receipts, scale tickets, etc. And knitting together several disparate applications into a functioning system required a great IT team.
As Chief Financial Officer of Command Transportation, those processes were my responsibility. I only wish I had then the kind of back-office software that’s available now.
The most advanced system bypasses templates altogether with state-of-the-art OCR and machine learning. Scanned documents are identified instantly and the information is read correctly and automatically. If the system does not recognize a page the first time around, it “remembers” that document. One or two more exposures and the system will recognize that document going forward. The broker isn’t required to do anything. The system learns by itself.
The system matches shipment documents, checks that they all agree, and then presents them on a single computer screen for approval by a human. Beyond that and handling of exceptions, humans need not be involved at all.
And, rather than costly software installation integration, 3PLs and brokers use the system over the internet. The advantages of hosted software are familiar by now. There is virtually no upfront investment to start and the low, per-transaction cost directly reflects the volume of business and presumably a broker’s level of success. These applications are also designed to communicate with the TMS so that the cost and risk of integration is no longer an issue. Perhaps best of all in the rapidly developing field of document processing, the hosted system is future proof. You won’t need to upgrade in a year. The latest technologies will be in the system at no added cost.
Surprisingly, even with such inexpensive and advanced processing easily available, some companies fail to see the advantage. But more and more 3PLs and brokers, big and small alike, are automating their back office.
My experience at Command tells me this is key to profitability and growth. And as more competitors are now starting to process and pay invoices with less staff, fewer errors and lower cost, I believe that automation will go a long way in determining winners and losers over the next two years.