Opinion: Make Smart Long-Term Business Decisions
B>By Tom M. Weisz
I>Chief Executive Officer
MW Systems
It’s easy to get caught up in this frenzy of activity and think only about your immediate needs, that is, how am I going to handle this additional freight? The temptation is to ignore the long-term implications of decisions that will affect a company’s ability to remain competitive when volumes taper off. Instead of concentrating on the next two months or so, it is better to plan for the next two years and consider the long-term benefits and return on investment of all capital spending.
However, unless a manager truly has a handle on what his or her cost of operation is for each customer, how profitable every piece of business is and which customers offer the right fit for a company, it is difficult to make a crucial investment decision, such as expanding fleet size, based on facts rather than emotion. How would a manager know if the extra business to be added is the right strategic fit?
The key to evaluating long-term needs is accurate, real-time data about every facet of operations, performance and profitability. This is the information that should ultimately drive smart business decisions.
For instance, if a company is considering a strategy to increase revenue by adding more vehicles to its fleet, it is critical to know what current revenue per load is and whether that ratio could be sustained with additional equipment. An executive needs to drill down to what his or her operating expenses are per unit, to cost per shipment and profit margin for each customer. If the executive doesn’t have access to these data, how can he or she judge if adding more equipment makes sense for the company?
Another area where data are paramount is in understanding the machinery of business, so that a carrier can determine where opportunities for improvement lie. This includes finding ways to reduce empty miles, billing lag-time and days of sales outstanding, as well as labor and administrative expenses.
If a company doesn’t have the kind of visibility into its daily operations that is needed to achieve significant savings, improve productivity and increase revenue opportunities, perhaps this is the time to consider investing in information infrastructure before taking the leap to expand fleet size. For the approximate cost of one tractor-trailer, a company can implement an enterprise management system that will improve information flow and allow its managers to continually measure the performance level and cost of each facet of the operation.
carriers continue to command higher rates and fuel surcharges for their services while capacity tightens, being able to justify actual costs for a given customer is a powerful tool in forging the kind of long-term relationships that continue to thrive even when the business climate changes and shippers are once again in the driver’s seat. Again, carriers can accomplish this only if they can have consistent visibility to their data.
In addition to providing an accurate picture of a company’s operation, enterprise management systems also enable firms to improve their decision support and tactical execution. For example, a carrier can implement business rules to determine which loads are the most attractive and which it should turn down because they are not profitable.
These tools also help eliminate numerous manual processes so that carrier personnel can focus on more customer-focused tasks, thereby improving the company’s satisfaction rating.
However, analyzing company data isn’t the end to the long-range decision-making process. A manager also has to consider other variables that can’t be readily defined. For instance, with the driver shortage growing bleaker, will carriers be able to hire enough drivers to operate additional equipment? How would the decision to reject lower-margin business affect customer loyalty? A company needs to factor these intangible variables into its decisions.
Whatever long-term investments an executive considers for his or her business, the time to plan a move is now, because the window of opportunity may be short-lived. At the same time that demand is growing, the rising costs of insurance, driver wages, fuel and equipment are increasingly offsetting additional revenue.
While keeping up with the current business boom may have made it difficult to step back long enough to consider long-range plans, taking the time now to evaluate future business needs may eliminate some tough decisions and additional challenges down the road when market conditions change.
TMW Systems of Beachwood, Ohio, develops management software for the transportation industry.
For the full story, see the Nov. 1 edition of Transport Topics. Subscribe today.
