More than ever, a carrier’s business is becoming National Account/3PL driven. As we all know, that business is generally acquired at a reduced price, sometimes substantially so. The carrot? At the reduced price you get a higher volume of business. The tradeoff? You sacrifice quality of revenue for quantity. Carriers bring that business on board under the assumption that it will provide contribution.

The terminal begins to see an increase in shipment count and revenue. The terminal manager asks for another driver and more equipment to handle the increased business. Revenue is up, all right, but so are variable costs, and therefore profits remain stagnant or decline despite the revenue increase. Throwing equipment and people at the problem doesn’t solve it, but only fuels the vicious cycle.

Again, every carrier EMS has worked with has had at least 30% excess capacity. The key to profit growth is growing outbound revenue in the right places, managing capacity at a higher level on a daily basis, and absorbing increased shipments with the capacity you already have in place. Generating additional business at no additional cost is the key to building operating leverage.

A

All companies reach a point where they can either move forward to profitability or wallow in stagnation. If a company’s performance is stagnant, it’s because problems have become too complex for senior management to see and understand—what I call the Barrier of Complexity. As a result, symptoms are treated and the real problems go unresolved.

In the trucking industry, you know all too well what those problems are:

--Increased operating costs due to competitive pressures and customer demands.
--Rising capital investment and reinvestment costs.
--An acute driver shortage.
--Rising insurance costs.
--Rising wages and benefits for your employees.
--Rising fuel costs (enough said).

LTL companies often react to these problems instead of managing them because they’re measuring productivity in outmoded ways.

For example, most companies still use Operating Ratio to measure shipment profitability and make pricing decisions. But is a 105 operating ratio on a shipment a “true” 105? That shipment could generate $5 or $75 of profit. You know which one I’d pick. But do you always know how much the contribution each shipment will generate?

If you don’t, you’re operating blind. And operating blind in today’s environment will lose you money. A trucking company is only as strong as its terminals. Effective Management Systems helps you see and understand what’s happening at the terminal level—we have the software and technology to diagnose problems based on accurate information and to help you develop strategies to maximize profit.

Here’s how.

--Accurately measuring and understanding productive output. As a manager, you don’t just want to pay by the hour—you want to pay for the productive output during that hour.

Many companies base their accounting systems on actual cost. But almost every company EMS has worked with has been at least 30% inefficient (or carrying 30% excess capacity). When you use actual costs, you’re passing your inefficiencies on to the customer with price increases, and in a free market environment that becomes harder and harder to do.

--Using capacity efficiently. With inefficiencies built in to your accounting system, your company doesn’t know the true quality of the revenue because the inefficiencies are masking that. As a result, many trucking companies don’t know their true capacity, turn away business, and as a result growth is stunted. Much more market share is available to most companies than they realize.

--Utilizing a productivity/capacity management system with engineered standards. Such a system allows you to manage capacity and productivity at the terminal level on a daily basis.

All companies have three containers—fixed cost, variable cost, and revenue. The key to running a profitable company is managing the relationship of variable cost to revenue. But if variable cost is not separated out from fixed cost—if you cannot see it—then you have no way of managing productivity and capacity in an effective, profitable way. And most traditional, full-costing accounting methods keep variable costs hidden.

Fixed cost remains relatively the same whether any business is handled or not. Take depreciation as an example—the bank doesn’t care if you move that piece of equipment or if you’d had 50 more shipments in a given day. All they want is their payment each period.

In contrast, variable cost is just that—variable. Each shipment has some level of variable cost associated with it because each shipment uses time and capacity—wages and benefits for drivers, mechanics, and dockworkers, fuel costs, equipment costs, maintenance, etc.

Fixed cost is where you make your investments, but you pay for those investments by managing the relationship of variable cost to revenue—i.e., by measuring, understanding, and managing productivity.

In the trucking industry, fixed costs generally comprise 25-30% of each revenue dollar and variable costs 60 to 70% of each revenue dollar, yet the primary concern on the terminal P&L statement seems to be the proper allocation of fixed cost to revenue. Go figure!

Using the traditional P&L statement as a management tool at the terminal level is inefficient. Companies hit the Barrier of Complexity because they use one method to measure productivity and another method to measure cost. The two have no relevance to each other because they can’t help you align the two key areas that drive growth and profitability—sales and operations.

Let’s talk work measurement. There are five ways standard times can be determined:

1. Motion analysis.
2. Time study.
3. Work sampling.
4. Historical times.
5. Estimates.

The first three are work measurement tools, the last two are not. Historical times (or actual times from clock/payroll systems and activity data) and estimates may be adequate for seldom-performed tasks. But for routine, high occurrence, cost-consuming tasks, historical times perpetuate inefficiencies and estimates can be grossly in error. Yet the majority of carriers today still use incomplete productivity measurements—stops per hour, pounds per man-hour, wages as a percent of revenue, shipments per hour, etc. Then they use an accounting-based, full-costing methodology based on actual costs to make decisions that drive business levels.

More than ever, a carrier’s business is becoming National Account/3PL driven. As we all know, that business is generally acquired at a reduced price, sometimes substantially so. The carrot? At the reduced price you get a higher volume of business. The tradeoff? You sacrifice quality of revenue for quantity. Carriers bring that business on board under the assumption that it will provide contribution.

The terminal begins to see an increase in shipment count and revenue. The terminal manager asks for another driver and more equipment to handle the increased business. Revenue is up, all right, but so are variable costs, and therefore profits remain stagnant or decline despite the revenue increase. Throwing equipment and people at the problem doesn’t solve it, but only fuels the vicious cycle.

Again, every carrier EMS has worked with has had at least 30% excess capacity. The key to profit growth is growing outbound revenue in the right places, managing capacity at a higher level on a daily basis, and absorbing increased shipments with the capacity you already have in place. Generating additional business at no additional cost is the key to building operating leverage.

A

If you don’t, you’re operating blind. And operating blind in today’s environment will lose you money. A trucking company is only as strong as its terminals. Effective Management Systems helps you see and understand what’s happening at the terminal level—we have the software and technology to diagnose problems based on accurate information and to help you develop strategies to maximize profit.

Here’s how.

--Accurately measuring and understanding productive output. As a manager, you don’t just want to pay by the hour—you want to pay for the productive output during that hour.

Many companies base their accounting systems on actual cost. But almost every company EMS has worked with has been at least 30% inefficient (or carrying 30% excess capacity). When you use actual costs, you’re passing your inefficiencies on to the customer with price increases, and in a free market environment that becomes harder and harder to do.

--Using capacity efficiently. With inefficiencies built in to your accounting system, your company doesn’t know the true quality of the revenue because the inefficiencies are masking that. As a result, many trucking companies don’t know their true capacity, turn away business, and as a result growth is stunted. Much more market share is available to most companies than they realize.

--Utilizing a productivity/capacity management system with engineered standards. Such a system allows you to manage capacity and productivity at the terminal level on a daily basis.

All companies have three containers—fixed cost, variable cost, and revenue. The key to running a profitable company is managing the relationship of variable cost to revenue. But if variable cost is not separated out from fixed cost—if you cannot see it—then you have no way of managing productivity and capacity in an effective, profitable way. And most traditional, full-costing accounting methods keep variable costs hidden.

Fixed cost remains relatively the same whether any business is handled or not. Take depreciation as an example—the bank doesn’t care if you move that piece of equipment or if you’d had 50 more shipments in a given day. All they want is their payment each period.

In contrast, variable cost is just that—variable. Each shipment has some level of variable cost associated with it because each shipment uses time and capacity—wages and benefits for drivers, mechanics, and dockworkers, fuel costs, equipment costs, maintenance, etc.

Fixed cost is where you make your investments, but you pay for those investments by managing the relationship of variable cost to revenue—i.e., by measuring, understanding, and managing productivity.

In the trucking industry, fixed costs generally comprise 25-30% of each revenue dollar and variable costs 60 to 70% of each revenue dollar, yet the primary concern on the terminal P&L statement seems to be the proper allocation of fixed cost to revenue. Go figure!

Using the traditional P&L statement as a management tool at the terminal level is inefficient. Companies hit the Barrier of Complexity because they use one method to measure productivity and another method to measure cost. The two have no relevance to each other because they can’t help you align the two key areas that drive growth and profitability—sales and operations.

Let’s talk work measurement. There are five ways standard times can be determined:

1. Motion analysis.
2. Time study.
3. Work sampling.
4. Historical times.
5. Estimates.

The first three are work measurement tools, the last two are not. Historical times (or actual times from clock/payroll systems and activity data) and estimates may be adequate for seldom-performed tasks. But for routine, high occurrence, cost-consuming tasks, historical times perpetuate inefficiencies and estimates can be grossly in error. Yet the majority of carriers today still use incomplete productivity measurements—stops per hour, pounds per man-hour, wages as a percent of revenue, shipments per hour, etc. Then they use an accounting-based, full-costing methodology based on actual costs to make decisions that drive business levels.

More than ever, a carrier’s business is becoming National Account/3PL driven. As we all know, that business is generally acquired at a reduced price, sometimes substantially so. The carrot? At the reduced price you get a higher volume of business. The tradeoff? You sacrifice quality of revenue for quantity. Carriers bring that business on board under the assumption that it will provide contribution.

The terminal begins to see an increase in shipment count and revenue. The terminal manager asks for another driver and more equipment to handle the increased business. Revenue is up, all right, but so are variable costs, and therefore profits remain stagnant or decline despite the revenue increase. Throwing equipment and people at the problem doesn’t solve it, but only fuels the vicious cycle.

Again, every carrier EMS has worked with has had at least 30% excess capacity. The key to profit growth is growing outbound revenue in the right places, managing capacity at a higher level on a daily basis, and absorbing increased shipments with the capacity you already have in place. Generating additional business at no additional cost is the key to building operating leverage.

A

--Utilizing a productivity/capacity management system with engineered standards. Such a system allows you to manage capacity and productivity at the terminal level on a daily basis.

All companies have three containers—fixed cost, variable cost, and revenue. The key to running a profitable company is managing the relationship of variable cost to revenue. But if variable cost is not separated out from fixed cost—if you cannot see it—then you have no way of managing productivity and capacity in an effective, profitable way. And most traditional, full-costing accounting methods keep variable costs hidden.

Fixed cost remains relatively the same whether any business is handled or not. Take depreciation as an example—the bank doesn’t care if you move that piece of equipment or if you’d had 50 more shipments in a given day. All they want is their payment each period.

In contrast, variable cost is just that—variable. Each shipment has some level of variable cost associated with it because each shipment uses time and capacity—wages and benefits for drivers, mechanics, and dockworkers, fuel costs, equipment costs, maintenance, etc.

Fixed cost is where you make your investments, but you pay for those investments by managing the relationship of variable cost to revenue—i.e., by measuring, understanding, and managing productivity.

In the trucking industry, fixed costs generally comprise 25-30% of each revenue dollar and variable costs 60 to 70% of each revenue dollar, yet the primary concern on the terminal P&L statement seems to be the proper allocation of fixed cost to revenue. Go figure!

Using the traditional P&L statement as a management tool at the terminal level is inefficient. Companies hit the Barrier of Complexity because they use one method to measure productivity and another method to measure cost. The two have no relevance to each other because they can’t help you align the two key areas that drive growth and profitability—sales and operations.

Let’s talk work measurement. There are five ways standard times can be determined:

1. Motion analysis.
2. Time study.
3. Work sampling.
4. Historical times.
5. Estimates.

The first three are work measurement tools, the last two are not. Historical times (or actual times from clock/payroll systems and activity data) and estimates may be adequate for seldom-performed tasks. But for routine, high occurrence, cost-consuming tasks, historical times perpetuate inefficiencies and estimates can be grossly in error. Yet the majority of carriers today still use incomplete productivity measurements—stops per hour, pounds per man-hour, wages as a percent of revenue, shipments per hour, etc. Then they use an accounting-based, full-costing methodology based on actual costs to make decisions that drive business levels.

More than ever, a carrier’s business is becoming National Account/3PL driven. As we all know, that business is generally acquired at a reduced price, sometimes substantially so. The carrot? At the reduced price you get a higher volume of business. The tradeoff? You sacrifice quality of revenue for quantity. Carriers bring that business on board under the assumption that it will provide contribution.

The terminal begins to see an increase in shipment count and revenue. The terminal manager asks for another driver and more equipment to handle the increased business. Revenue is up, all right, but so are variable costs, and therefore profits remain stagnant or decline despite the revenue increase. Throwing equipment and people at the problem doesn’t solve it, but only fuels the vicious cycle.

Again, every carrier EMS has worked with has had at least 30% excess capacity. The key to profit growth is growing outbound revenue in the right places, managing capacity at a higher level on a daily basis, and absorbing increased shipments with the capacity you already have in place. Generating additional business at no additional cost is the key to building operating leverage.

A

In the trucking industry, fixed costs generally comprise 25-30% of each revenue dollar and variable costs 60 to 70% of each revenue dollar, yet the primary concern on the terminal P&L statement seems to be the proper allocation of fixed cost to revenue. Go figure!

Using the traditional P&L statement as a management tool at the terminal level is inefficient. Companies hit the Barrier of Complexity because they use one method to measure productivity and another method to measure cost. The two have no relevance to each other because they can’t help you align the two key areas that drive growth and profitability—sales and operations.

Let’s talk work measurement. There are five ways standard times can be determined:

1. Motion analysis.
2. Time study.
3. Work sampling.
4. Historical times.
5. Estimates.

The first three are work measurement tools, the last two are not. Historical times (or actual times from clock/payroll systems and activity data) and estimates may be adequate for seldom-performed tasks. But for routine, high occurrence, cost-consuming tasks, historical times perpetuate inefficiencies and estimates can be grossly in error. Yet the majority of carriers today still use incomplete productivity measurements—stops per hour, pounds per man-hour, wages as a percent of revenue, shipments per hour, etc. Then they use an accounting-based, full-costing methodology based on actual costs to make decisions that drive business levels.

More than ever, a carrier’s business is becoming National Account/3PL driven. As we all know, that business is generally acquired at a reduced price, sometimes substantially so. The carrot? At the reduced price you get a higher volume of business. The tradeoff? You sacrifice quality of revenue for quantity. Carriers bring that business on board under the assumption that it will provide contribution.

The terminal begins to see an increase in shipment count and revenue. The terminal manager asks for another driver and more equipment to handle the increased business. Revenue is up, all right, but so are variable costs, and therefore profits remain stagnant or decline despite the revenue increase. Throwing equipment and people at the problem doesn’t solve it, but only fuels the vicious cycle.

Again, every carrier EMS has worked with has had at least 30% excess capacity. The key to profit growth is growing outbound revenue in the right places, managing capacity at a higher level on a daily basis, and absorbing increased shipments with the capacity you already have in place. Generating additional business at no additional cost is the key to building operating leverage.

A

More than ever, a carrier’s business is becoming National Account/3PL driven. As we all know, that business is generally acquired at a reduced price, sometimes substantially so. The carrot? At the reduced price you get a higher volume of business. The tradeoff? You sacrifice quality of revenue for quantity. Carriers bring that business on board under the assumption that it will provide contribution.

The terminal begins to see an increase in shipment count and revenue. The terminal manager asks for another driver and more equipment to handle the increased business. Revenue is up, all right, but so are variable costs, and therefore profits remain stagnant or decline despite the revenue increase. Throwing equipment and people at the problem doesn’t solve it, but only fuels the vicious cycle.

Again, every carrier EMS has worked with has had at least 30% excess capacity. The key to profit growth is growing outbound revenue in the right places, managing capacity at a higher level on a daily basis, and absorbing increased shipments with the capacity you already have in place. Generating additional business at no additional cost is the key to building operating leverage.

And the only way to do that is to use macro-productivity measures and engineered standards to break through the Barrier of Complexity by truly understanding costs and productivity. Which method provides the best opportunity to manage growth more effectively and bring alignment to sales and operations? Managing total cost and guessing at contribution levels? Or separating out fixed cost from total cost, and then managing variable cost and revenue by knowing the level of contribution?

The EMS system uses the same standards on the costing side as the productivity side, bringing alignment to sales and operations. We’ve had great success in helping trucking companies improve profitability by providing them with the following tools:

--P&D Module Detail Report analyzes the productivity of every P&D driver by terminal, to identify inefficiencies so you can grow revenue without adding additional labor cost and equipment.

--Determining Fixed Cost Per Terminal/Standard vs. Full Costing Methodology, so you can manage variable costs in relation to revenue.

--Lane Summary Data.

--Dock Efficiency Report, which helps identify inefficiencies in dock loading, enabling you to shift drivers from dock work to hauling freight on the street.

--Trailer Utilization Report.

These are the methods you can use to break the Barrier of Complexity.