Trucking is responsible for most of the overland freight movement in the United States, with the market being worth 791.7 billion U.S. dollars in 2019. Trucking is responsible for thousands of employments across America.
The TRI company, a transport company, with 12 truck transport began its operations in 2002. The owners have three more companies, but TRI company is not profitable as they are expecting.
TRI company delivers the cargo from the seaport to the clients’ warehouses. The general manager is a well-educated engineer, but he cannot increase the profit margins, as the owners want.
The TRI company profit margin was 2% in the period of the last year. The general manager thinks the drivers (truckers) could be stealing fuel from the trucks. Plus, he thinks, the truckers could make more than one trip to deliver cargo to different sites, but he doesn’t have the tools to find it out.
The main customers are soft drink companies, beer companies, manufacturing raw materials, and importers.
What would be your approach to this challenge? What would you do first? Is it just a supply chain management solution? What processes are affected by the symptoms described?
STATUS / SITUATION / CHALLENGES
After an exploration meeting, the challenges identified at TRI were:
- Lack of information to have the P&L report per truck,
- Lack of information to have the P&L report per client,
- No Cash Flow Forecast for the next 6 weeks,
- No KPI to follow up the operations by truck and by customer,
- Lack of Maintenance program for the truck fleet (12 trucks).
The TRI employees (truckers) do not have a high school diploma and the office is in disrepair. The company has 16 employees, including the general manager. Not all the employees are proud to belong to the company. Although the general manager is fair and objective with the employees, he never plans any activities to improve the culture of the company.
TR has no information system, no KPI, no operational meetings. The truck maintenance program does not consider mileages, fuel efficiency, or the minimum service to be perform. The lack of maintenance planning is affecting the spare parts inventory and the cash flow of the company. The spare parts inventory is not updated in the system, and it is not balanced according to the needs of the trucks.
Company rates are not updated based on circumstances and do not consider the miles to travel to deliver freight to customer, fuel efficiency, operating costs and expenses. It is always the same rate for all clients.
With this new information, has your initial focus changed? What else has changed beside your focus?
During the first week, the consultant carried out daily statistical studies, interviews and field observations, to know through the processes, indicators and employee’s behavior, the opportunities to be solved.
One of the first tasks to be carried out in the second week was to establish the Mission and the Strategic Objectives with the general manager. Before doing the above, the general manager was able to obtain a market share study for the sector. With this information, the mission could be rethought.
With the cost and expenses accounts in order, one of the highest operational costs was the fuel for the trucks, so the consultant had to design and implement a spreadsheet to keep track of this item every day. He created an operating system where the maintenance assistant had to record the miles every day when the trucks left to deliver and when the trucks returned to the facility. He recorded the fuel supplied (in the morning) and performed a random audit of each truck per day, to determine the accuracy of the information.
With all this data, every day he could compare the fuel efficiency and planned fuel efficiency. He also used this information to plan the maintenance of each truck.
This information was used to determine all operating costs including all tolls and expenses paid by trip. Ultimately, the consultant was able to design a P&L per truck, per client and for the entire company. The company was able to realize some services of some customers were non-profit. At this point, the general manager was able to define what rates should be negotiated again. At this stage, he was able to define with the owners of the company what gross margin they could establish for the next couple of years.
With all this new information and the newly implemented procedure, the project had all the information to build a cash flow spreadsheet, where the general manager was able to forecast for the next 6 weeks, all the cash inflows and outflows, to plan better accounts payable and accounts receivable.
In the operational management system, the planner was able to assign the best performance for each truck on each route, considering the distance and the fuel efficiency between truck-trucker. With this methodology the gross margin per truck, per client and for the entire company was increased.
The general manager also implemented a performance bonus for truckers. The main objective of this program was to reduce truck maintenance and to increase the fuel efficiency.
The project was lasted 12 weeks, and the consultant involved all company employees. The consultant conducted three trainings on: Finance, Standard Operating Procedures and Team Leadership in an operating environment.
The return of investment (ROI) was 3.2 to 1.
But the best result was coaching the general manager how he could be a leader within the company. During the project he was able find out what the employees’ problems were, to begin to define a plan to solve them. He set a budget to improve the culture of the company.