By Michael BuckPresident
MCB Fleet Management Consulting
This Opinion piece appears in the June 11 print edition of Transport Topics.
A few weeks ago, this newspaper reported that two of trucking’s leading economists said the industry’s recovery is well under way and should continue for at least several years. Trucking, they said, has been outperforming the economy, and conditions in the marketplace are far better than financial commentators and politicians have said.
But those same economists also cautioned prudence in the matter of keeping costs under control and warned that a serious driver shortage is developing. They also said that while fuel prices are dropping a bit, it’s still relatively expensive and equipment prices are on the rise.
Transportation is a leading, not lagging, indicator, and economic cycles and fluctuations — positive or negative — tend to have an immediate effect. In the end, your trucking operation’s success will be predicated, not on what analysts say, pro or con, or what Wall Street does tomorrow or next week but on your own strategies for controlling variable costs, executing the plan and staying firmly on course.
Keeping variable costs in check is an extremely difficult task unless you have the proper controls in place. There are six basic ways a trucking company can cut costs — and you won’t like the first five:
• Cut staff.
• Cut wages.
• Cut benefits.
• Cut customer services.
• Cut equipment maintenance.
OK, you can’t totally cut maintenance without pulling the plug on your business, but you can put it off for as long as possible. Take heart, though, because the sixth method is both the least traumatic and the most effective:
• Improve productivity with defined processes and/or the use of technology.
Technology’s role in cost control doesn’t need lengthy explanation in the age of handheld computers. And “defined processes” simply means establishing and using systematic steps, including capturing the transportation industry’s best practices, to achieve a specific end — and then making sure everyone in the company does his or her part consistently.
A defined process can be as simple as figuring out the best way to sharpen a pencil or as complex as creating and implementing the industry’s most comprehensive preventive maintenance program.
In addition to reduced costs and improved services, the results of such a program include a work environment in which every job, companywide, is performed with ease and minimal stress. That process captures the employee buy-in needed to ensure the success of the initiative and creates a loyal and fulfilled workforce eager to ensure a long-term solution through all business cycles, regardless of economic conditions.
Done properly, these processes increase the bottom line without robbing Peter to pay Paul. For example, despite popular belief to the contrary, low maintenance cost and high asset utilization can coexist.
The unfortunate reality is that the first reaction to thin profit margins is the aforementioned method No. 5 — deferring maintenance. But that inevitably equates to more-frequent breakdowns, higher costs and disastrously poor scores on the Federal Motor Carrier Safety Administration’s new Compliance, Safety, Accountability program.
Instead of overreacting and setting the company up for failure, start building a foundation that enables effective processes. Begin developing superior cost controls by using your senior leadership’s knowledge. With some quick analysis and consensus by the leadership team, the low-hanging fruit should be readily evident with a few simple questions:
• What are the high cost drivers?
• What controls or emphasis could be put in place to reduce each cost driver?
• Is the right team in place for managing this cost driver?
• What controls and metrics are in place to proactively monitor and control this cost driver?
• What are the expiration dates on the contracts or service agreements affecting this cost driver?
• Can — and should — they be negotiated prematurely?
• Do you have an experienced individual qualified to negotiate the contracts or service agreements affecting this cost driver fairly?
With the information this analysis provides, you easily can assemble a team to develop a process for gaining control of the respective cost drivers impeding your bottom line.
Here are some tips for implementing this type of initiative — and some mistakes to avoid:
• At first, go slowly to go fast. People don’t handle too much change at one time very well, good or bad. Start off by casually mentioning in passing the upcoming initiative and watching closely to determine who will rise above the throng and qualify for the leadership team.
• Decide whether those who aren’t good team players should even remain part of the organization. Are they consciously or — to give them the benefit of the doubt — subconsciously running covert actions that impede the success of the leader or the organization? Do they sense the need to remain profitable? Do they embrace the organization’s culture?
• Even if solutions are evident to senior leadership, help the team reach them by asking probing questions, no matter how long it takes.
• Have the team develop the method and metrics to monitor progress.
• Use an unbiased, unintimidating facilitator.
• If necessary, use a third party.
The most obvious result of turning to cross-functional teams is their immediate and positive effect on profitability.
The underlying benefit, however, is their effect on camaraderie and morale throughout your organization as they reduce stress, improve productively and produce nonquantifiable, but beneficial, improvements to the bottom line — and to customer satisfaction.
Economies inevitably wax and wane, and when times are good, the next dip may be around the corner. But with reliable processes in place and a fully engaged workforce, you are prepared to weather any financial storm.
