REVENUE MANAGEMENT FOR 3PL OPERATORS
Navigate your revenue streams with automated pricing, rating, billing and invoicing
Managing your revenue with full control of pricing, rating, activity-based costing, time-dependent events, invoicing and metrics tracking.
Third party logistics (3PL) operations thrive through modest charges on a variety of tasks performed numerous times on behalf of many customers over various lengths of time, often in a multiplicity of facilities with diverse physical resources. Their offerings basically are comprised of services and space, and their revenues derive from the effective allocation of each.
The key factors in any 3PL arrangement are tasks (labor) and time (optimizing facilities usage). These two factors can be extended almost indefinitely, with charges generally falling into one of six general categories:
- Handling — moving product in, about and out of the facility
- Storage — holding and managing inventory per customer requirements
- Production and Assembly — value-added services
- Accessorial Charges — services requested by customers
- Order Level Charges — administrative and accommodation tasks
- One-Time Charges — miscellaneous, off-menu activities
Each potential charge must be identified, separately priced and rated, pooled, billed and invoiced. Combining the metrics developed through these activities furnishes the management information that the logistics facility operator needs to assess the financial health of the business. AccellosOne Enterprise 3PL software supports growth and profitability by incorporating mechanisms that simplify and expedite these complex processes.
Pricing 3PL charges is essentially a process of negotiation. Each customer arrives with unique characteristics and requirements and as a result, each contract is also unique. To arrive at a mutually advantageous pricing structure our six broad categories must be further broken down, to sometimes miniscule levels, with charges attached to every transaction under virtually every probable circumstance, with a code attached to each charge.
Pricing can be based on units - each, case pallet, weight, cube, document; they can be configured by warehouse, customer, product, or product group, or by transaction variables such as number of cases. They can also incorporate transaction related factors such as vendor, ship-to customer, carrier, carrier group, order group and freight terms. They can also be configured to accommodate third-party charges and mark-ups.
The calculus involved in establishing, capturing and applying the charges for each transaction of each customer determines whether the 3PL is viable as a business. AccellosOne Enterprise 3PL incorporates a suite of capabilities that allows implementation of the negotiated pricing structure as a software-resident table of coded charges and from this table to facilitate and monitor the revenue processes throughout the end-to-end life of the inventory.
REVENUE RATING ENGINE
The activity-based charge codes indicate the activity that is being charged for, normally by unit of measure — by hundredweight, pallet, case or each — as well as type of storage (e.g., ambient or freezer) and value-added service.
Once the 3PL has established what it is going to charge for, how much and when, it must capture the actual performance data by means of the transaction codes and place the data in a context that is useful to the billing process. Given the complexity of today’s 3PL public warehousing industry, executing these functions even in a modest-sized enterprise seems unimaginably difficult.
AccellosOne Enterprise 3PL performs these functions automatically through its rules-based, on-board revenue rating engine — an automated capture and calculation mechanism that resources the table of charges as each transaction is executed. Extremely flexible, the engine then rates the charges untended, applying its rules to a variety of factors such as general global definitions, specific tariffs, customer level, product level or any qualitative or quantitative factor that applies. Data is captured in two ways: manually, with personnel entering the details of each service at the time of execution — item number, description, activity, storage details, etc. — or automatically, through unique billing profiles that apply pre-defined charges attached to the service level. The billing profiles capture information in a variety of ways — via customer expectations as expressed on shipment documents or EDI advance ship notices, for example; or from handheld computers operated by floor personnel. As the information enters the system, the revenue rating engine knows how to access the table of charges automatically, locate the code and apply it.
ACTIVITY-BASED REVENUE AND COSTING
Activity-Based Costing (ABC) identifies activities and assigns the cost of each activity resource to products and services according to the actual consumption by each to arrive at the actual cost of products and services. The ABC methodology assigns an organization's resource costs through activities to the products and services it provides to its customers. In the 3PL universe, for example, this provides operators with a tool with which to understand service and customer costs and profitability and to support strategic decisions as pricing initiatives. In order to set up the table of charges, then, the basic services of the 3PL operation are parsed further to arrive at the level of detail needed to capture the revenue for each service provided, most of which entail an expenditure of labor. Handling involves every activity associated with the receipt of inventory, assigning its storage location, relocating it and ultimately retrieving, picking and staging for shipment. Storage involves the physical aspects of the inventory — how much space, what type of storage, special requirements, time of storage and more.
Production and assembly might be construed as light manufacturing to create and package a finished product from stored components to order.
Accessorial charges comprise a virtually open-ended category of customer-selected options that lie outside the basic receiving, storage and distribution operations and which fulfill their specific requirements. Among the more common ones: Stretch wrapping and shrink wrapping Labeling, packaging, repackaging Serial number capture palletizaton and containerization Sorting Labor costs (regular time, overtime, holidays) Special projects
Order level charges are similar to accessorial charges but relate to individual orders rather than to broad product or inventory management activities. Among them are administrative functions, bill of lading charges, rush orders and others. One-time charges apply to any miscellaneous items, from equipment rental to EDI transaction document set-up to physical inventories and more.
Various profiles can be established for chargeable warehouse activities, each with its own Accellos-defined code:
- Depositor Inventory Level Profile (DLIP) — Defines the inventory to be billed at, and the default minimums for initial storage, renewal storage and handling.
- Depositor Billing Profile (DBIP) — Defines the invoice type and the invoice level minimums for receipt, renewal and accessorial charges.
- Item Initial Storage Profile (IISP) — Sets up charges for initial storage and discount period, if any.
- Item Renewal Storage Profile (IRSP) — Sets up charges for renewal storage and renewal dates.
- Item Handling Profile (IHAP) — Sets up charges for handling.
- Items Billing Profile (IBIP) — Assigns the initial storage, renewal storage, handling and date profiles to the item profile. Also defines the local overrides for initial storage, renewal storage and handling minimums.
- General Extra Charges (GEXC) — Sets up charges that are automatically applied to a receipt or to an order when EXIN is run.
- Extra Charge Profile (ECHP) — Sets up charges that may/may not be related to a specific receipt or order; can be applied manually or automatically by running EXIN.
The Depositor Billing Profile (see above) defines the types of invoices to be used, their terms, applicable taxes and minimums, as well as the frequency with which they reissue. Rated charges are “pooled” by the billing engine and attached to the customer records. Invoices are created by accessing the charge pool according to schedule, calculated and printed for hard copy distribution or posted as flat files for electronic customer access.
INTEGRATION WITH FINANCIAL SYSTEM
As the invoices are prepared and issued by the AccellosOne Enterprise 3PL management software, the charges are summarized in a cash receipts table and sent by file transfer protocol (FTP) to the 3PL operator’s financial management or accounting software’s general ledger. AccellosOne Enterprise 3PL supports virtually all commonly used accounting packages, among them Great Plains, Sage, MAS-90 and more.
MEASURING PROFITABILITY — SALES METRICS
The Activity-Based Costing model enables the operator to assign finely tuned cost information to a field within the rating engine. Thus, when the invoice summary is transferred to the accounting software’s general ledger, the operator has a convenient means by which to determine profitability by several metrics, among them: Profitability by service Profitability by customer Profitability by service level Labor costs by activity Labor costs per customer Revenue capture per labor unit Comparable costs between customers Profit and loss by customer
The tension between cost and revenues is a constant in any type of business, but it may be exaggerated in 3PL by the number, types, variability and frequencies of the services provided. AccellosOne Enterprise 3PL logistics management software brings an optimum level of automation, flexibility, control and visibility to customer-related revenue management tasks with multi-level configurability by individual customer. At the same time, it furnishes operators with a valuable set of management information metrics through which to optimize the cost revenue balance — individually or enterprise-wide.