This Opinion piece appears in the Jan. 23 print edition of Transport Topics. By Joe White
By Joe WhiteOwner
When searching for cost-cutting opportunities executives often overlook established, industry-common practices that, if better managed, could greatly improve bottom line results. For the trucking industry, here are four common practices worth a second look: suggestions on how to estimate the profit opportunity associated with each and one common solution.
Home-time activities for longhaul and regional-haul trucking companies focus on driver retention and include getting drivers home for family events, weekends and as often as possible during the week. Unfortunately, the cost of home-time compliance is often overlooked and undermanaged. Drivers taking trucks home, the inability to always dispatch the closest truck for a pickup and swapping trailers on the road to balance delivery, and home-time commitments all result in costly empty miles. The solution would be to estimate opportunity by tracking incremental empty miles associated with home time for one week and then annualizing those miles. Next, multiply annual incremental miles by your variable cost per mile. Then, multiply that result by a percentage estimation of the empty miles you can eliminate with aggressive management of home-time activities.
Mixed Fleet Load Distribution
Fleets utilizing both company drivers and owner-operators usually do not manage load profitability distribution between driver types, resulting in significantly lower revenue per mile on company-owned equipment. Business-savvy owner-operators have independent contractor status and therefore frequently refuse low revenue, short mileage and one-way dispatches. Regardless, if paid by percent of revenue or mileage rates, owner-operators train dispatchers on acceptable load parameters based on high revenue, likely backhauls and associated surcharges. The solution would be to estimate opportunity by researching average revenue per-mile difference between company trucks and owner-operators. Include fuel surcharge in revenue per-mile calculation. Then multiply 20% of revenue per mile difference by total annual miles run by company truck fleet (20% only used as owner-operators do need a high percentage of profitable loads to be retained).
Dropping loads at a terminal for local delivery is designed to make more productive use of longhaul drivers. Unfortunately, over time, dropping instead for driver convenience becomes an allowable practice, creating unnecessary off-route miles (deviating from route-to- delivery to route-to-terminal) and expensive local delivery costs. Additionally, the revenue penalty for owner-operator load dropping often is less than the actual cost of follow-up local delivery on company trucks. The solution would be to estimate opportunity by reviewing one week’s worth of dropped loads to determine which should have been delivered. Calculate additional costs of “should haves” by multiplying incremental off-route miles times your variable cost per mile. Then add cost of local delivery and annualize.
Training, goals, best practices, incentives and supporting policy are too often not sufficiently provided or aligned to meet profit objectives. This is particularly true at the middle manager level (terminal and driver managers), where the hundreds of daily decisions that shape driver and fleet performance are made. A driver manager with 25 assigned drivers is in effect managing a $2 million-plus business (based on $80,000-plus revenue per driver per year), yet these positions are often filled by former drivers with little training except data entry. The solution would be to estimate opportunity, which requires assumptions about improvement levels possible with an effective performance management program. At a minimum, calculate the impact of a 0.5% improvement to all of the following performance areas influenced by terminal and driver managers: loaded mile percentage, revenue/truck, revenue/mile, miles per gallon, home-time costs, mixed fleet load distribution and terminal drops.
Note that the first three often overlooked practices previously discussed (home-time costs, mixed fleet load distribution and terminal drops) are included in the opportunity calculation for performance management. The reason for their inclusion is simple: An effective performance management program can improve every operational performance area influenced by driver managers.
Perhaps it’s unfair to include performance management on the often overlooked, common industry practices list as most trucking companies don’t have a true performance management program in place. But it is fair to tout performance management as a common solution for improving virtually every operational metric.
The elements of an effective performance management program are training, goals, best practices, financial incentives and supporting policy. Length limitations for this article prohibit explaining the significant value each element offers towards improving profitability so the reader is strongly encouraged to pause at this point and spend a few moments thinking about the value each of the five elements offer and the extent to which they are practiced, or not practiced, in their organization.
Now, consider their combined value to your organization. Trained driver managers using best practices to achieve aggressive performance goals supported by bonus opportunity and enabling policy are now making the hundreds of daily decisions that define the performance of your drivers and fleet. With a well-designed performance management program in place, the “often overlooked” become the “always managed” and bottom line opportunity becomes profit reality.
CostDown Consulting, which is based in Grayson, Georgia, provides trucking company owners and executives with performance management, driver retention and operational cost reduction services.