Revenue leakage: Inside a logistics company

To describe revenue leakage in a logistics company, it is important to know how such a company works in general terms.

A logistics company brings together transport and warehousing service providers with companies who need to distribute good. These service providers might be part of the logisitics company or third parties, but are always treated, by the billing department, as third parties. Both the clients and the service providers are based in different countries and many, many locations need to be served by the distribution network.
The clients need goods to be transported from a number of distribution centers to a large number of destinations. And, sometimes, from these destinations back to the distribution centers. Based on these needs, the client agrees with the logistics company what kind of services it needs and how much it is going to pay for those. A contract is drawn up with precise definitions of the activities contracted, as well as a table with rates (prices) for these activities, usually called rate cards. Typical activities include incoming phone calls at a call center, receipt of wares in the warehouse (inbound), preparation of wares for transportation (outbound) and the transportation of the wares to the destination. This transportation can happen by air, by truck, by courier, express, same day, next day, etc.
In the same way that there is a contract and a rate card between the clients and the logistics company, there are contracts and rate cards between the logistics company and the different service providers. Ideally, the activities are defined in the same way in both contracts, but that is not always the case. Naturally, there should be a difference in the rate cards of the clients and the providers, which is how the logistics company generates their revenue: clients pay a higher price for an activity than the price the logistics company pays to their service providers. In exchange, the logistics company maintains and operates the distribution network for the client.

Revenue leakage in the logistics business

My consulting job at DHL was to look for revenue leakages in the billing department of one of their units. During a reunion with my master thesis team, including the professor who counselled us (Prof. Schiereck, then at EBS, now TU Darmstadt) I discussed this shortly with them. From this discussion, my friend Boris, who is a lawyer as well as an MBA, sent me an e-mail analyzing revenue leakages from a point of view of a law office. I started to write him a response, but decided to use the blog for this, explaining a bit more about revenue leakages in a logistics company.
I will do so in a small series of articles in the next days. I think this is a good way to power up this blog again after a long pause.