Operational metrics
- Thread starter KeyFactor
- Start date
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As a broker most of my operational metrics are related to customer service: I measure how long it takes to get a truck after receipt of order from customer.. how long it takes me to process an order i.e. how long from the time my carrier calls to when they have the order in hand. How quickly do I respond to rate requests is another one. How long does it take for me to invoice a customer once order has been confirmed delivered etc.. most are related to time, but of course I also keep track of profits and costs as we hopefully all do.
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Without sounding old fashioned, I believe there are only two reasons to measure any part of your operation. 1) To determine if the results of the most current measurement are better or worse than the last measurement. 2) How do the results compare with those of others within your industry? As a general "rule of thumb", unless the results can contribute to a distinct improvement in one's operation, they maybe a waste of your time. Hmmmm....maybe I have been completing too many RFQ's prepared by " consulting companies" ? They are notorious for trying to measure absolutely everything. When transportation becomes an exact science, like chemistry or quantum physics, it will be a whole lot easier to measure every aspect of it.
@loaders, I have clients that have grown revenues dramatically, but are not showing much more profit and can't explain why because they are not comfortable with accounting statements. I'm trying to change that and figure out ways for them to know where they should be on costs. Yes, it is useful to compare current results with those of the past and with industry benchmarks and I'm trying to find out what are those benchmarks.
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I used to work for the Irving Group in NB. First thing one learns as a manager there is to measure everything, to understand the numbers, and to present those numbers in a cogent and understandable format at a moment's notice. I've applied the same thinking to my business.. I probably go overboard, but I'm a numbers guy and prefer to have too much information over the alternative.
@Freight Broker, I must confess to being cut from the same cloth. The numbers themselves don't mean anything without proper analysis and context. This may be less important if your business is doing well, but when your market is as competitive as transport, I feel you have to measure, track and analyse everything.
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I am not against using metrics as a means to monitor and improve my business. It just has to be relevant statistics. As you mentioned key factor, there are companies who have experienced growth, but are befuddled as to why they continue to lose money. Most businesses meet their demise not through the result of one catastrophic event, but through the steady drip of cash that goes unnoticed in day to day operations. Sometimes refered to as "death by a thousand cuts". Tragically, it is too late to wait until the floor is covered with blood, to start looking for where the loses are. This is where measurements, or metrics make sense. Why have my office expenses risen over last year? What has caused my employee benefits to be 30% higher this year than last? Why has my profit margin decreased on this particular lane? Quantify and measure only those things that have a direct impact on your bottom line. Don't get caught up in chasing your tail looking for things to measure. Unlike freightbroker and key factor, I gained my early business experience by partnering with an entrepreneur. His motto was, keep things simple and logical and don't spend any money unless it will make you money. Old school yes, but in many ways, still applicable today.
Years ago I had the opportunity to ask a very successful, very old, famous businessman what the secret to making money was. He simply said " sell it for more than you paid for it". At first I thought he was being a smart ass. He then went on to say that it is only possible to do that when you know exactly what you paid for it. Once you determine your "total cost" you simply have to price it accordingly. If the market you are in will not pay more than it costs you, then you need to either lower your costs or find another business. Transportation is a little tougher since we live in a world where we quote fixed pricing and deal with variable costs with every load.
Knowing a number as accurate as possible to calculate your true cost is critical. A cost per mile number is only accurate if you include every cent of your total cost. Too many carriers base their cost per mile on operational costs only. Once you add in all administrative costs, all building costs, all management, all taxes, all travel and entertainment, and every single dollar that is on your monthly P&L and then divide by miles driven you will then have an accurate number.
And since this number will change monthly and seasonally you need to average it out over at least 5 years to have a number that makes sense.
Knowing a number as accurate as possible to calculate your true cost is critical. A cost per mile number is only accurate if you include every cent of your total cost. Too many carriers base their cost per mile on operational costs only. Once you add in all administrative costs, all building costs, all management, all taxes, all travel and entertainment, and every single dollar that is on your monthly P&L and then divide by miles driven you will then have an accurate number.
And since this number will change monthly and seasonally you need to average it out over at least 5 years to have a number that makes sense.
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Your Monthly statements need to be done in a timely manner and really should tell you exactly what areas you need to concentrate on for metrics ie if something is out of whack from your budget concentrate on that but always worry about driver pay and fuel as these are 2 of your biggest cost centers and always open to questionable expenses.
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I had the same experience.. maybe the same old businessman. He told me that the secret to his success was always getting back to people.
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As we have learned from others before us, we now have the opportunity to pass this valuable knowledge onto those of the current generation. I find it interesting to see how many of us had the good fortune to have a mentor, or someone to advise us. Lowmiler 88 is correct in saying that monthly statements are the most important indicator of how your company is doing. If there is a problem, it will show up there, and give you the chance to take corrective action, before the floor is too bloody!
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I've never had a mentor.. but have noticed a strong correlation between success and basic human courtesy. In their presence I've always felt uncommon strength of character but also, in working for a few, I felt security in that I would always be treated fairly. I'm a numbers guy, but numbers aren't everything.
I think any way can work if you use it properly. Cost per mile that only includes direct costs (fuel, driver salary, maintenance) is perfectly valid if you're trying to determine the potential contribution of a given load. It will tell you how much is available to service your other operating costs or fall to the bottom line as the case may be. Your approach also works; the information provided is not exactly the same, but can be useful nonetheless.
Out of all the metrics I calculate, the most useful is my 'Work in Process' or WIP. This number is graphed weekly and calculated in real time. It is placed on my desktop so that each time I minimize everything I see the number.
This is the total dollars of all my orders on the books that need to be picked up, en-route or yet to be delivered. Once it is delivered it moves to the AR bucket. Drilling down into this number I can see how many orders/dollars have been picked up and en-route, and how many are waiting to be picked up.
This number tells me a number of things. If the number is low then its a slow week or the orders are being fulfilled quickly (shorter lanes). If the number is high, we have a lot of orders (great!) or dispatch needs to up their game and deliver loads quicker (push to have delivery dates tighter) - or the lanes are longer.
It also helps me to identify cash flow. Longer lanes usually means that the expenses needed to fulfill the lane will be used way before the invoice.
It is a really great metric to watch and see how the numbers coincide with your cash-flow, AR, and forward plan for capital expenditures. It is the number I used the most to identify potential issues way before I have to deal with the fallout.
This is the total dollars of all my orders on the books that need to be picked up, en-route or yet to be delivered. Once it is delivered it moves to the AR bucket. Drilling down into this number I can see how many orders/dollars have been picked up and en-route, and how many are waiting to be picked up.
This number tells me a number of things. If the number is low then its a slow week or the orders are being fulfilled quickly (shorter lanes). If the number is high, we have a lot of orders (great!) or dispatch needs to up their game and deliver loads quicker (push to have delivery dates tighter) - or the lanes are longer.
It also helps me to identify cash flow. Longer lanes usually means that the expenses needed to fulfill the lane will be used way before the invoice.
It is a really great metric to watch and see how the numbers coincide with your cash-flow, AR, and forward plan for capital expenditures. It is the number I used the most to identify potential issues way before I have to deal with the fallout.
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So what we are all saying here, seems to be the need to "take the pulse" of your business on a regular schedule to monitor it's health (profitability). The differences appear to be, to what extent you want to go to achieve that. A simple finger on the wrist approach, or hooked up to an ECG. Either way, it is critically important.
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When calculating your true cost remember the most important thing ... profit is an expense.
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