Leak 11 · Freight & Cost-to-Serve - Expediting costs not passed through
The customer needs it Friday. Purchasing pays a supplier expedite fee and overnight freight. The sales order still shows the standard price and ground freight.
Diagnostic note. Symptoms, required records, an initial check, and possible fixes. This shorter note does not include a full worked example.
What is it?
Expediting has costs on the inbound side: supplier expedite fees, premium inbound freight, and sometimes a higher unit cost from an alternate source. These costs are paid by purchasing and rarely make it back to the sales order that caused them, because the sales order was entered before the cost was known.
- Family
- Freight & Cost-to-Serve
- Primary owner
- Purchasing Manager
- Secondary owners
- Customer Service Manager, CFO
- Primary impact
- Gross margin
- Typical data source
- Purchase orders, inbound freight invoices, supplier expedite fees, sales orders
- Detection difficulty
- 30-day measurability
Ask yourself
When you pay a supplier expedite fee or overnight inbound freight for a customer’s order, is that cost on the customer’s invoice?
Yes, partially, no, or don’t know. “Don’t know” is the most useful answer, because it points at the test below.
What does it look like?
Warning signs. None of these proves the leak exists. They tell you where to look.
- Inbound premium freight and expedite fees rising with no matching revenue line.
- No field on the sales order to record an expedite cost.
- Purchasing and customer service each assuming the other one billed it.
What data do I need?
The minimum viable set. Most of it is already in your ERP.
| Field |
|---|
| Purchase order with expedite fee and inbound freight cost |
| Linked sales order and customer |
| Expedite charge billed on the sales order, if any |
The initial check
Start with a small sample. Gathering the exports, agreements, or observations is separate from running the check; agree that work with the person who owns the records.
- 1Pull last quarter’s inbound freight and supplier expedite charges from AP.
- 2For the twenty largest, find the sales order that drove the purchase.
- 3Check whether any expedite or premium freight charge appears on that sales order.
Unrecovered expedite = Σ (expedite fee + premium inbound freight) − expedite charges billed to customers
Then ask one question: Did the customer know the cost of the rush before they asked for it?
How much could it be costing us?
A conservative range, not a headline. The goal is a number management can trust enough to investigate.
Annual expedite and premium inbound freight × share driven by customer requests × share you could reasonably bill
Common root causes
Fixes fall into three layers. Not every problem needs software, and almost none needs AI first.
- Process
- No step where purchasing tells customer service what the rush cost, and no policy on billing it.
- Data
- Purchase orders are not linked to the sales orders that caused them.
- Technology
- No expedite charge field on the sales order, so there is nowhere to put the cost even when it is known.
What should we do?
Start with the simplest intervention that could solve it. Move down the list only if the one above is not enough.
Level 1
Visibility
A monthly list of expedite costs with the sales order and customer they were for.
Level 2
Policy
Customers are quoted the expedite cost before the rush is placed, and it is billed as a separate line.
Level 3
Workflow
When a PO is flagged as an expedite for a sales order, the cost flows to the sales order as a billable line for CSR confirmation.
Where AI helps
- Linking POs to the sales orders that caused them when the ERP does not carry the link, using items, dates, and quantities.
Where AI probably doesn’t
Adding an expedite charge line and a two-sentence policy captures most of this. Start there.
Before you call it a leak
- Sometimes the rush is your fault, because of a stockout or an entry error. Bill only the rushes the customer asked for.
Think this might be happening in your business?
Turn the finding into a next step.
If the numbers say there is something there, send us what you found and we will help you decide whether it is worth a full investigation. No transaction files needed for that conversation.
Related leaks
- Leak 08 · FreightFreight recovery leakageYou pay the carrier $100 and bill the customer $60, or nothing. Across every shipment in a year, the gap is often a six-figure line that never appears on any report.
- Leak 09 · FreightUnprofitable emergency deliveriesA driver spends two hours delivering a $90 part because the customer’s line is down. It was the right call once. It is now a habit nobody prices.
- Leak 23 · InventoryStockouts on high-value SKUsThe fast, high-margin item is out again. The customer buys elsewhere, and the sale is never recorded because it never happened.
Let’s start with one thing.
What would better performance look like?
Bring a result you want to improve, a symptom, or a workflow you already understand. You do not need to know the bottleneck yet. We’ll help choose what to investigate first.
No transaction files needed for the first conversation.