There is an old saying that if you fail to plan, then you are planning to fail. The starting point for any trucking company executive in trying to lead his company through turbulent times is the creation and successful execution of a sound business plan. In this blog I will address the 7 elements that need to be in place to achieve great results.
Here they are:
1. Customers
It is customers that ultimately pay our salaries so they must be at the starting point of every business plan. During these difficult times, it is essential to engage customers and remain close to them. They are experiencing similar pressures brought on by the challenging economy. To meet their evolving needs, it is important to understand how their world is changing and how a carrier’s value proposition may need to adapted to current realities. Are customers planning on consolidating shipments on certain days of the week or shifting freight from road to intermodal or focusing more on regional rather than long haul markets? Staying close to customers allows carriers to maintain their business and add business from competitors that no longer have a viable business proposition.
It is also essential to have accurate contribution margins by account and business segment and have them reflected in the business plan. During these times, there is a tendency to add freight at any rate, regardless of the contribution and to jump in and out of businesses without proper analysis.
It is also important to find ways of adding value whether it is providing service in lanes that are not part of the carrier’s current coverage map, or by providing cross-docking or warehousing. This is the time to look at non-capital intensive means of building the business. This can include using agent terminals, contracting line haul transportation to others or providing freight brokerage services, both as a new source of revenue and as a means of meeting the needs of customers that cannot be fulfilled through a carrier’s asset based businesses.
This is the time to fire up sales through a relentless focus on pipeline management. This is not the time to rush out and cut rates indiscriminately since this may turn low margin freight in losing freight and erode the profitability of the business.
2. Employees
It is hard to open a newspaper or turn on a television set without hearing about job cuts. These are going on throughout North America. They key question is who are the employees who should fill the lifeboat if the ship capsized. While some staff reductions may (or may not be necessary) based on projected business volumes, the objective is to retain the best employees, not necessarily the employees with the longest seniority. While employee loyalty is commendable, contributing to a company’s bottom line is more commendable. Rather than across the board cuts, it may make better business sense to bolster the strong segments and make deeper cuts in the weak ones.
This is the time to be creative when it comes to employee retention. Job sharing, cutting back on number of days worked and asking employees to take unpaid vacations are all methods of adjusting staff levels to the available work. The key is to retain the productive employees who contribute to the business plan. Now is the time to replace non-productive employees with the good performers.
3. Capacity
Every trucking company has some capacity constraints. It is essential to look at those variables that impact directly on a company’s ability to generate revenue. They include an assessment of the size, type and age of the fleet, the driver pool (and access to additional driving resources), operating authorities (including the need to service all the locations applicable to these authorities), insurance and a company’s ability to handle overflow. The key is to make a careful assessment of the maximum contribution that can be achieved though the optimization of capacity. It is also the time to carefully assess which vehicles should remain in service and which vehicles should be parked.
4. Costs
There is a need to look at all fixed, variable and overhead costs and to calculate some key ratios.
Total Operating Costs + Overhead / total KM/Yr = Cost per KM
Revenue = Rate per KM X Number of KM
Profit = Revenue – (Expenses + Overhead)
The focus must be on maximizing revenue generating kilometres while minimizing non-revenue producers.
Which costs can be combined, eliminated, outsourced, or converted from fixed or semi-fixed to variable? Realistic budgets must be set and spending on all non-essential items must be controlled. There needs to be a focus on purchases with a quick ROI. Cost concessions should be sought by combining and leveraging outsourced activities with vendors. Cash flow must be managed very diligently. This requires a very intense collections process and a skilful prioritization of payables requirements and timelines.
5. Measurement
Dashboards are helpful in managing each segment of the business. This is where it is important to focus on the critical few KPI’s that mean the most to the business. The short list probably includes employee productivity, sales performance, contribution management, capacity utilization and cash flow management.
6. Accountability
Everyone has to step up in order to achieve results. Every member of the team must have KPI’s that are monitored continuously. Non-performance must be dealt with swiftly and effectively or other members of the team will lose motivation.
7. Results
The first six steps mean nothing if the objectives are not achieved. If a company is not hitting its targets, there is a need to understand the obstacles and faulty assumptions. All excuses must be challenged. The idea is not to placate the “whiners.” It is essential to deal with the real performance issues.
On the other hand, if there are flaws in the assumptions underlying the plan, the plan must be recalibrated to achieve results. If the targets are not being hit, after the plan is recalibrated, then the people issues must be dealt with quickly.
We are not living in a static world. A company’s competitors are out there planning their own initiatives. They are targeting the same good customers and employees. That makes it so much more important that the core strategies be revised and recalibrated (if and when appropriate), to ensure the Business Plan is viable. Addressing these seven items in a systematic way can help trucking company leaders guide their companies through the turbulent times.