Logistics Teams Up With Accounts Payable to Recover Lost Profits

Oct. 14, 2009
Roquette uses a freight payment audit process to generate refunds from rail carriers.

As a producer of corn-based starches and syrups, Roquette America Inc. faces a situation typical to manufacturers -- identifying exactly how much the company is spending on transportation and logistics. Figuring out how much it spends on freight per year is the easy part, but Roquette wanted to know a lot more. For instance, what percentage of total production cost does that amount represent? What is the company's percent of profit margin? If the transportation carriers were refunding identified overpayments to Roquette, what would the impact be on gross profit before tax?

Roquette decided to run a financial analysis on its freight payment history, based on the following premise: If the company operates at a 5% profit margin, it takes $20,000 in sales to generate $1,000 in profit. Conversely, when Roquette's transportation service providers refund $1,000 to the company, that money -- which would immediately impact the gross profit before tax, represents $20,000 in sales. Roquette refers to this as the "profit percentage to cost of sales" model.

Thanks to Roquette's freight payment audit process, a dollar returned equals many more earned. Shown is Roquette America's Gurnee, Ill., plant.

Roquette America provides customers with bulk liquid and powdered products manufactured at its plants in Keokuk, Iowa, and Gurnee, Ill., along with trucking services, for shipment to destinations nationwide. For its freight bill post auditing services, Roquette uses Audit Techs, a third-party audit firm. "I thought it made good sense, from a finance due diligence perspective, to have our freight bills audited," notes Nancy Motley, Roquette's senior team leader, accounts payable, payroll and compliance. The company's accounts payable group teamed up with the logistics department and supplied the audit firm with its rail shipment and bill payment data.

"Our Rail Services group provided rail contracts, shipment records and passworded accessibility to yet another third party online service that we use for rail car track and trace to verify the movement of rail cars and product," Motley explains. The audit firm, meanwhile, analyzed the rail shipment information and payment records, focusing particularly on areas where carrier billing errors are most common.

In terms of benefits, Motley points to two areas: cost control and payment process improvements. Rail carriers have returned a significant amount over a two-year period due to Roquette's ability to identify billing discrepancies. "There are more refund claims filed in the beginning," Motley points out, "because an audit can go back retroactively and audit billings from past years and then catch the process up to date. Those dollars, which had already been spent, when returned, go straight to the gross profit before tax line." Additionally, she adds that the "percentage of profit to cost of sales" analysis confirms that the audit process has, in effect, recaptured sizeable earnings dollars.

If you operate at a net profit of

A Claim For






Equals Sales Of































Roquette America uses a "profit percentage to cost of sales" model, shown here.

"There has been a direct near-term payoff in dollars collected, and the resulting cost-cutting strategies will focus on eliminating the scenarios that resulted in erroneous billings in the past," Motley continues. "The metrics reports that the audit provides may also be helpful with measuring on-going process compliance."

Roquette's discovery of a new revenue source illustrates the evolution of supply chain thinking on the financial side of manufacturing. The traditional logistics department's tactical view of how to budget for freight movements has been superseded by a more centralized, corporate-wide fiscal analysis of the bigger picture, a transformation possible due to the implementation of enterprise systems that can plan, administer and account for all company costs.

The company compensates the auditors on a percentage of the dollars returned from its carriers after it has received its carrier refund checks, notes Paul Janicki, Roquette's chief financial officer. "That means that there is zero cost to Roquette America to realize the return of profit that the service has generated. Equally as important, this engagement has helped focus our efforts on improving our processes."

"While the emphasis of this endeavor is to drive further cost containment, it also will give finance and accounts payable an opportunity to sit down with the logistics group and talk about the ongoing audit process to determine what we can do to cooperate towards further process improvement," Motley adds.

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About the Author

Dave Blanchard | Senior Director of Content

Focus: Supply Chain

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During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeekEHS Today, Material Handling & LogisticsLogistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2010), which has been translated into several languages and is currently in its second edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

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