Cost Structure Improvements
Top management of a specialized transportation business recognized that its structure and procedures were inadequate to compete in the market as a common carrier. As a result of a high cost structure and outmoded dispatching and route-planning systems, the expense ratio reflected a steady 5 to 8 percent loss on trucking operations.
Senior management commissioned SDG to help the company find meaningful cost-reduction opportunities and improve the flow of a new, profitable business. The assignment also included investigation into ways that the company could differentiate itself in the marketplace.
The project team analyzed all the core business processes, including marketing and sales, trip planning, maintenance, dispatching, driver reporting, and accounting. It conducted a survey of customer expectations and preferences to identify non-value-added activities that could then be substantially reduced. The team developed several operational changes that would improve driver and tractor utilization by more efficient route planning, hub-and-spoke routing, and a system to accept non-bulk loads from freight brokers to eliminate non-revenue miles on empty back-hauls.
Most of the process improvements resulted in reduced cycle time to process customer transportation orders, schedule transportation, and produce customer billing. These improvements made the company more responsive to customer needs and, in time, increased revenues. In addition, accepting non-bulk loads from brokers reduced tractor downtime by nearly 80 percent and increased driver utilization by the same amount. The total effect of all improvements reversed the downward trend in profitability through cost reduction, asset utilization, and revenue growth.
