Don’t Push for Profitability ― Pull!

Operational costs consume much of the revenue a carrier can earn and is therefore suspect in being the biggest drain on profits for most carriers. The majority of operational costs are incurred the moment the driver is dispatched to the customer’s facility for a pick up or delivery. Along the way to the customer’s dock, costs impact the carrier’s earnings in the form of fuel/oil costs, tractor/trailer payments, repair and maintenance costs, insurance premiums, permits and licensing, tires, tolls, and finally, driver wages and benefits. These costs are often expressed in terms of costs per mile. Knowing the cost per mile aids the carrier in determining its chance for profitability while the vehicle is on the road.

But what about when the vehicle arrives at the customer’s dock and is waiting to get loaded or unloaded? Operational costs continue to accumulate whether the vehicle is rolling or not.

Another way to express these same costs, which would be especially helpful when measuring downtime at a customer’s dock, is by stating the costs as an average cost per hour. Once the carrier knows the total operational cost of each unit, including the driver wages and benefits, the carrier is then able to determine the hourly costs by dividing the total operational cost of each unit by the hours per day management expects the unit to be in use. This would provide the carrier its average cost per hour.

This information is exceptionally helpful to the carrier when determining the profitability in doing business with its customers. But first, the carrier must determine exactly what its customer expects and then sell to the customer what value, derived from learning the customer’s expectations, the carrier can add to this process. This is the difference between the “push” method of management, which adds costs to the operation, and the “pull” method, which can be used to control operational costs. Producing large quantities of the same product (or service) in order to spread costs is the “push” process. In other words, more customers and more trucks do not automatically equate to more profit.

The “pull” process requires the carrier to look at the entire process, meaning from the time the order is placed to the time the shipment is delivered and the trailer is emptied. Within that process, the carrier must identify activities and movements that add no value to the transaction, but instead cause waste within the process affecting its hourly costs. Surprisingly, the customer may be able to assist the carrier in this effort.

Productivity is as important to the customer as it is to the carrier. The customer’s shipments aren’t always moving either. They also have a tendency to back up and wait between process steps of their own or their customers/suppliers, causing delays in shipping or receiving, loading or unloading, picking and putting away, etc. Sharing this information and finding solutions to improve a process can be beneficial to both parties.

Once these wasteful practices are identified and eliminated, the carrier has the opportunity to “pull” the customer into helping improve the carrier’s costs per hour by reducing or eliminating waste for both parties. This is where the value of working together can be recognized by the customer and, in turn, “pull in” additional profit for the carrier.

 

From JJ Keller

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