The hidden costs of outsourcing FAP: What do you need to watch out for?
Find out how the transition from people-led outsourcing to tech-led in-house FAP management is reshaping the freight spend landscape.
Over the years the practice of outsourcing freight audit and payment (FAP) processes has gained considerable popularity in the world of logistics. On the surface, this approach seems highly attractive, promising substantial benefits in terms of cost reduction, improved focus on core activities, and access to specialized expertise. However, beneath these apparent advantages, there are hidden costs and associated risks that companies must carefully consider.
Outsourcing FAP used to be the go-to strategy for many companies, but it's now considered a thing of the past for several reasons. Firstly, the traditional people-led outsourcing model often involved third-party providers who lacked the efficiency and precision of modern technology. With advancements in automation and data analytics, companies are realizing the potential to manage FAP processes in-house, using tech-led solutions that are faster, more accurate, and cost-effective. This shift allows businesses to have greater control over their financial operations, reduce errors, and adapt to changing market conditions more swiftly.
In this blog post, we'll delve into why this shift is happening, the risks associated with outsourcing FAP, and how technology, specifically AI and ML, is enabling seamless in-house management while maximizing efficiency and cost-effectiveness.
Winds of change: More organizations are choosing to shift FAP in-house
Freight audit and payment (FAP) has become strategically integral to the supply chain execution process today. It's no longer just a cost-cutting measure; it's a key driver of supply chain efficiency and competitiveness. Freight spend visibility, which is a fundamental aspect of FAP, enables companies to make informed decisions, optimize routes, negotiate better rates with carriers, and enhance overall supply chain visibility.
In a fast-paced and dynamic business environment, having a powerful FAP strategy is essential for 100% freight spend visibility across channels, carriers and modes enabling organizations to stay competitive and meet customer demands. The need for actionable insights from freight payment data to optimize logistics strategies is growing. Globalization, better regulatory compliance, improved carrier relationships with timely payments and reduced carbon footprint by moving to a paperless organization are some of the drivers for this paradigm shift.
Therefore, as companies recognize the strategic value of FAP in their supply chain operations, they are increasingly moving away from traditional outsourcing models in favor of tech-led, in-house solutions, ensuring their competitiveness and adaptability.
4 key risks to keep in mind when making the decision to outsource your FAP processes
There are several risks to consider when making a decision on whether or not to outsource your freight audit and payment (FAP) operations. We’ve listed a few of the major ones below:
- Hidden costs: What may seem like a cost-effective outsourcing solution upfront could turn into a financial burden if unexpected expenses emerge during the process. This lack of transparency can directly impact your bottom line, leading to budget overruns and financial instability.
- Loss of control and visibility over your freight spend: Without real-time access to data and processes, you might find it challenging to make informed decisions and optimize your logistics operations. This lack of visibility can result in overpayment of freight bills, which not only affects your financials but also erodes trust with carriers, potentially straining your carrier relationships due to delayed payments.
- Information security: Entrusting sensitive financial and operational data to a third party can expose your business to data breaches and cyberattacks. Inadequate security measures can lead to financial losses, damaged reputation, and regulatory penalties, making it imperative to carefully evaluate the security practices of your outsourcing partner.
- Limited customization and adaptability: This lack of flexibility can impede your ability to respond to changing market conditions and regulatory requirements, potentially resulting in non-compliance issues and operational inefficiencies.
Keeping these risks in mind along with the growing awareness of the advantages of moving FAP in-house, global enterprises are turning to technology to streamline and automate their freight audit and payment processes. Moving FAP in-house also might not be as difficult as you think. Today, Transportation Management Solution (TMS) vendors offer freight audit and payments as a part of their extended capabilities.
Optimize in-house FAP with artificial intelligence and machine learning
To seamlessly bring FAP in-house without increasing your workforce and resources, you can leverage the power of AI and ML technologies. By automating tasks, improving accuracy, and providing valuable insights, AI and ML empower businesses to take their FAP operations to the next level. Here are five ways you can use AI to optimize your FAP processes:
- Revolutionize workflows with OCR: AI swiftly and accurately extracts critical information from invoices, reducing processing time and digitizing all documents.
- Detect anomalies for validation: Identify irregularities to ensure accuracy, while also preventing fraud, and optimizing operational efficiency.
- Automate invoice to payment verification and auditing: Automatically catch discrepancies and billing errors, reducing manual effort and improving accuracy.
- Resolve disputes quickly: Ensure accurate and timely payments by comparing disputed invoices with contracts and past records. Efficient dispute resolution often impresses carriers and suppliers, fostering stronger and smoother partnerships in logistics.
- Leverage predictive analytics: Plan and budget efficiently to eliminate unexpected freight costs and optimize your logistics operations.
To stay competitive and responsive in the ever-changing logistics landscape, integrating AI and ML into your in-house FAP is a strategic move. It ensures better cost control, optimized operations, and improved supply chain visibility. For practical insights on implementing AI in FAP, you can refer to this informative blog.
Embracing tech driven in-house FAP management is the key to unlocking the future of supply chain management
The shift from outsourcing FAP to managing it in-house, supported by AI and ML technology, represents a significant evolution in supply chain management. By embracing these changes, you can gain better control, visibility, and cost-effectiveness in your FAP processes. As numerous successful companies have demonstrated, the benefits of this shift extend beyond just cost savings to encompass strategic positioning and improved operational efficiency. The future of FAP is undoubtedly tech-led and in-house, enabling businesses to thrive in a rapidly changing supply chain landscape.
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