Excess capacity, reduced freight levels and less accessible yet more costly capital have shifted the concerns of many trucking CEOs from profitability to survival.
Cost control has always been a critical success factor in trucking but in today’s environment, without capital to invest in new technology, trucking CEOs need to take a second look at their existing operations and use analysis, creative thinking and new processes to improve financial performance.
The following ten actions are analytical and process based cost reduction measures trucking CEOs should consider to improve current operations. Each action should be approached with objectivity, creativity and a mindset that embraces the hard fact that disrupting or severing employee and vendor relationships are often the only options available for survival.
Reduce Overhead
Corporate overhead is frequently the largest, and most painful, cost reduction opportunity. Research what your corporate budget was as a percent of total revenue prior to the recession and then reduce headcount until you obtain that same percentage for current revenue levels. Enlist the aid of your executive team, give each department head a budget threshold they must meet and require that they submit ‘roadmaps’ detailing how each will obtain their reductions.
Audit Operations
Look internally for operational improvements that can be captured without expensive investments in new technology. A thorough and objective Operations Audit reviewing in detail how terminals manage drivers and equipment will almost always identify significant improvement opportunities. Effective Operations Audits identify new processes that improve driver performance (head haul, back haul, productivity and home time assignments), fleet utilization and general cost control. Use a professional to audit and identify your opportunities and then act upon those results.
Technology Review
Review all technology purchased in the last 5 years to determine if full value is being received from those tools. If not, call the vendors that sold your company the technology and require that they come back with recommendations and support on capturing the full promised benefit. Make sure to include the personnel in your organization using that technology in defining current performance issues and training needs.
Solicit Vendors for Price Reductions
Solicit all vendors for price reductions. Send a letter out explaining that tough economic times have forced you to require a 5% reduction from all vendors. Those vendors not willing to reduce their price will have their business put up for bid. You most likely will have to grandfather current pricing for some vendors but aggressive efforts will bring significant savings.
Reduce Inventory
Inventory is cash sitting on the shelf or shop floor. Lower terminal inventories by establishing reduced inventory goals for each location and aggressively managing the sale/return of obsolete inventory. Focus on expensive items such as tires, batteries, fuel, etc… Where possible, put more of the inventory burden on your supplier and require more frequent ‘just in time’ deliveries.
Establish a Performance Management Program
Employees, particularly those that most influence cost and revenue, need performance goals. Define aggressive performance goals for all employees within your organization. Drivers should have goals in terms of what makes sense for their particular application - miles driven, hours worked, revenue; etc… Driver Managers should have goals in terms of the productivity and retention of their assigned drivers. Effective Performance Management also requires that there is positive (bonus) and negative (coaching/discipline) consequences for individual performance to goals.
Improve Driver Caliber and Positioning
With Driver Turnover temporarily in remission, carriers need to take full advantage of the hiring opportunities they now have. Replace unproductive drivers that fail to respond to coaching and discipline. With more driver candidates currently available than there has been for years, now is also a good time to focus on hiring only drivers living in close proximity to their assigned terminals to minimize empty miles associated with getting a driver home for scheduled days off.
Train Driver Managers
Driver Managers, based on the number of drivers assigned, run a $2-4 Million business. They make literally hundreds of decisions each week that influence the cost and profitability of every mile run within their individual driver groups. As a result, Driver Managers need to be professionally trained in all areas of their responsibility including: Driver Productivity, Driver Retention, Breakdown Resolution, Service Performance and General Cost Control.
Review Equipment Assignments
Review all equipment assignments to make sure every asset is placed in the best application for its particular profile. APU equipped trucks should be on runs with the most frequent overnight stays. New trucks should be on two-shift operations to minimize night breakdowns. Older, high maintenance equipment should be on shorter runs and assigned to terminals that have shop locations.
Analyze Your Freight Network
Networks are dynamic and therefore need to be analyzed constantly, especially during times of low revenue. Terminal interaction should be monitored frequently to make sure load exchanges are performed to maximize company, not terminal laden mile performance. Have each terminal submit a Laden Mile Improvement Plan complete with improved laden mile performance goals and new actions to support those goals. Review and scrutinize the plans, make revisions where needed and then require managers to implement and manage their plans.
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Joe White is CEO of CostDown Consulting, a trucking consultancy that provides ‘Programs and Training that Reduce the Cost of Trucking’. Specific service offerings include Laden Mile Improvement Plans, Operations Audits, Driver Manager Training and Fleet Efficiency Planning. Joe is also author of the 8 video series ‘Driving the Costs out of Trucking’ produced by Big Truck TV and publisher of TruckExec, a blog for trucking industry executives. Joe can be reached at: JoeWhite@CostDownConsulting.com.
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