When you're in line at the grocery store, do you watch the cashier ring up your items looking for overcharges or do you wait six months, then review the cash register tape for mistakes and go back to the store hoping they'll give you a refund?

That's a dramatically oversimplified summary of a new freight-rate auditing strategy that clothing and retail firm Perry Ellis has put in place under Marvin Leto, vice president of corporate logistics.

As a garment maker, Perry Ellis' supply chain relies heavily on ocean transportation, shipping 5,500 40-foot equivalent containers a year to the U.S. Leto says 80% of those containers come from its more than 140 contract manufacturing factories in Asia (half from China and half from other Southeast Asian nations), while the rest comes in from Central and South American suppliers. And Leto points out that garment industry suppliers are notoriously last-minute in their shipping practices, making his job of getting garments out of those markets on time even more complicated.

So when Leto first arrived at the $900 million Miami-based Perry Ellis after working in the ocean transportation industry for the better part of three decades, he saw freight audit controls that were “less than stellar.”

“We had no internal audit capabilities at all,” Leto says. “We had people glancing at bills when the freight arrived hoping they were correct and then paying them.”

After Perry Ellis reviewed and paid the bills, they were sent to a third-party firm that would audit the bills from the latest available carrier contracts and try to get money back from the carriers for any overcharges, often six months after receiving the goods. “Having worked in the ocean transportation industry for 30 years, I know why they were not having success: The longer you wait the harder it is to collect money from carriers. Every request was an argument and was disputed.”

So the first step toward gaining better auditing capabilities was to improve the visibility into the company's 18 ocean contracts by simplifying what's covered in the contracts themselves.

“Ocean contracts are very complicated for a reason and have a lot of ancillary charges plugged into them,” Leto says. Leto worked closely with the company's various ocean carriers to negotiate out as many surcharges and tariffs as possible. “But even if I had them memorized, I'd still need someone to review it and figure out the rates.”

To that end, Leto brought in Management Dynamics, a logistics technology firm to put all of its contracts in one system and develop an internal matrix of Perry Ellis' ocean freight providers and lanes broken down by transit times and cost. The online rate system, called Rate Explorer, allows Perry Ellis to get a much clearer picture of a carrier's actual rate and have more negotiating power in selecting the right carrier for each shipment.

“So using the matrix, we look more closely at cost and when we are short on time, we can look for the provider with the shortest transit times,” Leto says. “It helped us understand our costs from each carrier and assign the right carrier to each move.”

But the major benefit of loading the ocean contracts into the new system was it allowed Perry Ellis to bring the freight-rate audit process back in-house, even introducing a “pre-audit” where the company now reviews the advance shipping notices that typically arrive five to 10 days before the ship comes into port. By doing that, “if we have a problem, we are able to get the price adjusted prior to paying them,” Leto says. “If we're not able to do that, we can petition for a refund very shortly after we make payment—again, the longer you wait, the harder it is to get payment.”

Carriers were not used to the system at first, Leto says, and there was some pushback when Perry Ellis began disputing charges before the shipments had even arrived. But once carriers got used to the process, carriers found that their own internal billing processes actually benefited from the audits because of the increased accountability. In fact, Perry Ellis worked with one carrier specifically on streamlining their freight bills after the new auditing process exposed that the carrier was hitting the same snags every time.

The first year of using this system identified $220,000 worth of overcharges. Leto says some carriers are more cooperative than others in refunding those overcharges, but having the data available earlier has increased the number of those that do pay.

“If you don't have anything like this for your ocean contracts, you're going to be missing out,” Leto says. “We only have one or two commodities, but for a shipper with multiple commodities it's even more important.”