International Rectifier knows where the money goes
The creation of an automated, centralized "self billing" unit for worldwide freight movements makes International Rectifier worthy of recognition for implementing best practices in logistics.
By James A. Cooke, Executive Editor -- Logistics Management, 6/1/2005
The creation of an automated, centralized "self billing" unit for worldwide freight movements makes International Rectifier worthy of recognition for implementing best practices in logistics.
Although the self-billing concept is not new, the way International Rectifier approached the project is unusual. That approach paid off: The new billing system not only improved invoice accuracy and cut freight-payment costs, it also created a database the company now uses for freight spending analysis. "I now know where every freight dollar I'm spending is going," says Tony Dugdale, director of worldwide logistics.
Accuracy and Automation
In the semiconductor industry, International Rectifier is known for its advanced power management technology, including advanced circuit devices, power systems, and components. The El Segundo, Calif., company recorded more than $1 billion in sales last year, exporting its products to more than 20 countries.
International Rectifier has distribution centers in Mexico, Italy, England, and Singapore. From there, it ships orders by air directly to customers, relying on third-party logistics companies (3PLs) Exel and Expeditors International to manage its transportation needs.
Until last year, the accounts payable departments in each of the four international shipping regions manually processed invoices from the 3PLs for shipments originating in their territories. About five percent of those invoices were incorrect, with billing errors ranging from one to one thousand dollars. The company, moreover, had no accurate view of its freight costs until it received an invoice from the 3PLs, Dugdale says.
When International Rectifier discovered "a million dollars of liability" associated with unpaid and inaccurate bills, Dugdale says, the company re-examined its approach to paying its service providers. "It took us six months with our 3PLs and a very intense resource analysis to identify the invoices (for correction)," he recalls.
Prompted by the errors it found, International Rectifier worked with its 3PLs to establish an automatic self-billing center at its corporate headquarters. As part of that initiative, the company added the ability to calculate freight costs to its proprietary warehouse management system (WMS). The WMS at each of the four international distribution centers now calculates total shipping costs, based on agreed pricing for door-to-airport linehaul, customs clearance, destination handling, and final delivery costs as well as fuel and security surcharges.
That information is written to a "regional file," and at the end of each week, the DCs transmit the data to a "global file" at the billing center in California. International Rectifier's regional logistics managers and the 3PLs receive the global data for review; any changes must be made within 10 days. After the 10-day waiting period, the billing system automatically pays freight bills for which it has received "214" shipment status messages confirming delivery via electronic data interchange (EDI), Dugdale explains.
Down to the Dollar
The centralized self-billing system has produced a number of benefits for International Rectifier. The new system has not only virtually eliminated invoice errors–invoice accuracy now averages 99.9 percent—it has also eliminated the need for accounts payable clerks at each regional DC. Time spent on auditing freight bills has been reduced by 90 percent. And the 3PLs now receive full compensation within 10 to 17 days of the shipment date—much faster than the 60 days that's typical in the transportation industry, Dugdale notes.
In Dugdale's view, the biggest benefit has been the creation of a freight-cost database that helps guide logistics decisions. With the database up and running, International Rectifier has been able to improve its forecasting of transportation expenses by 10 percent, eliminating the kind of "budget surprises" the company previously experienced. "Our budgeting process is way easier," Dugdale says. "We know down to the dollar what we're spending."
International Rectifier has also used data from the central billing system to speed its analysis of responses to its requests for quotation (RFQ). "RFQ activity analysis that used to take weeks is now completed within minutes," Dugdale says. "By entering new rates in tables and applying those rates across previous real shipment data, we can easily compare 3PLs' RFQ responses."
Finally, transportation costs can be analyzed in any number of ways. "We now know where every freight dollar is being spent," Dugdale says. "That could be by region, by sales sector, by customer, or by product function. I can cut the data any way the company wants me to."
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