It is a known fact that transportation spend vary from industry to industry owing to various factors. As evident from the 24th Annual Study of Logistics & Transportation Trends, it eats into a significant amount of companies’ sales revenue and has been increasing year-on-year.
Across industries, Logistics and IT departments are under constant pressure to improve routes, optimize loads, introduce new systems & strategies to reduce transportation cost. To achieve such enhancements and improve processes, companies need to decommission old legacy systems and implement new, robust, functionality-rich enterprise applications. Transportation Management System from SAP (SAP TM) can provide exactly that and support mission critical operations.
Source: 24th Annual study of Logistics and Transportation Trends (Master of Logistics)
Utilizing SAP TM as a source for charging and costing can provide innumerable benefits to a business. For example, accurate costing and invoicing can provide significant savings. One viable option to reduce transportation spend is to select the lowest cost carrier. This can be achieved by utilizing Transportation Charge Management Module (TCM) of SAP TM. TCM provides you with a broad and flexible calculation options. To enable this functionality several steps are required, but most importantly one needs to set up TCM Master Data. The following components represent core elements of TCM engine. By setting them up and linking them together one can utilize the engine to rate orders.
Freight Agreement (FA) – represents the contract with the carrier. It contains information such as payment terms, limits, etc. and it points to one or more calculation sheets.
Freight Agreement Example
Calculation sheet links to freight agreement
Forwarding Agreement (FWA) – is like FA and represents a contract with a customer.
Transportation Charge Calculation Sheet (TCCS) – includes transportation charge elements such as fuel surcharge, stoppage, base freight rate, etc. and points to charge rates.
Rate table links to calculation sheet
Rate Table – is an actual placeholder for rates/values relevant to an individual charge element. In other words, it is a “price list” of transportation service. Rate tables can have multiple scales and can be voluminous containing more than 1 million entries. Setup of such tables can be tedious, and to ease this process, integration with Microsoft Excel is provided, to upload rates into the system.
Rate table with values
Each rate table has a validity period, which comes handy when rates have expiration dates. Please note that validities of rates cannot intersect, and they must be in sequence. For example, you cannot have set of rates defined for the period of 01.01.2018 to 02.12.2018 and another one from 01.25.2018 to 03.01.2018.
Scale – is a dimension of a rate table representing such characteristic as ― distance, weight, number of stops, etc. Rate table can have up to 9 scales (dimensions) but for performance reasons, it is advisable not to model your TCM in such a way. Instead, use conditions, rules to split rate tables to improve performance.
TCM MD is set up for each carrier separately and must follow a hierarchy. However, these elements are reusable and can be used in multiple objects. For example, one rate table can be used in multiple TCCSes.
Relationship between TCM MD elements
Whenever freight order goes through transportation charge management, it goes through all TCM master data elements. The process starts with determination of a Freight Agreement, which can contain multiple TCCSes. Once TCCS is resolved, the system goes through each charge element and pulls out applicable rate from corresponding rate table. If rate is not found, the system does not stop calculation, but prompts with an error message. A notable feature allows configuration of alerts that will prompt analysts to act in a timely manner and resolve such issues.
Relationship between TCM MD elements
Typical example of transportation charges on a freight order
It is important to remember that TCM MD objects cannot be moved to your production environment via transports. Therefore, this master data must be manually created. Consider this during your go-live activities, as configuration and set up could be a time-consuming exercise.
Transportation charges can be computed for each freight order, and carrier ranking list contains all available carriers along with their corresponding charges. The system then picks up the cheapest carrier and assigns it to the freight order.
Carrier ranking list of a freight order
Once TCM is configured and setup, you can plan the next step of cash flow improvement by utilizing robust ERP system and relevant industry-specific calculation and taxation schemes. Your next step would be the settlement process that allows you to check invoice accuracy and, thus, attain better visibility into your financial collaboration with different carriers.
Krypt is a global Business and Systems Consulting firm and an SAP Strategic Partner for Services, Development, VAR and HCP (HANA Cloud Platform). We are the #1 value-add service provider for SAP System Solutions for small to large enterprises. Our clients have seen 10-40% savings over three years by leveraging our complementary products to go with standard SAP offerings.
We can help your organization achieve tangible results by providing subject matter expertise in Transportation Charge Management. Our team of experts can help you streamline your transportation processes and reduce your transportation spend.