All companies are exposed to having many uncontrollable variables that affect their profitability.
News such as devaluations, recessions, wars, pandemics, fewer sales, etc., makes the markets cautious, affecting the company's income and profitability.
In our experience with customers, we have seen that while there are good profit/utilities and good income, the control of expenses and the efficiency of the processes goes to a second term, since the same profit and income support the inefficiency of the company.
But when the income disappears and the revenue goes down, is when the company does not know where to start. At this moment the company realizes that they have no control over it.
The serious thing is that current reports and systems do not detect in a timely manner when there is a leak in the money or excesses in operating expenses. The main cause is that the controls are obsolete or unreliable, due to a lack of policies, guidelines, and inefficient processes that make the task of the Manager or leader of the company very difficult to make sound decisions to keep profitability healthy.
For a company to face a crisis It is essential to be very clear about the critical costs of the transport operation, its goals, and measurement methods in order to improve them and have healthy profitability.
Based on our experience, the most critical costs for a transport company are the following:
Diesel consumption represents up to 30% of the expense compared to the total income depending on the type of transport operation.
Followed by the payroll or commissions of the operators that represent up to 13% of the commission that is paid to the operator compared to the total income generated by the operation.
Then the tolls that must be paid during the trips, represent up to a maximum of 9% of the expense compared to the total income.
Per diems for lodging food or payment of unforeseen events during the trip represents up to a maximum of 4% of the expense compared to the total income.
Lastly, the maintenance of the units in terms of spare parts and tires represents up to 9% compared of the monthly income.
These costs can represent up to 65% of the total expenditure in a period defined by the company.
For each cost we must know the one who, when, how, and where they are generated to be able to measure them and detect where there are uncontrolled or money leaks and the actions of cost reduction is taken, to validate their improvement and achievement of goals established in the budget and annual planning.
We have developed a cost reduction model reaching to reduce until 5%. by implementing strategies, mainly in savings in diesel consumption which is the most significant expense, and in the maintenance expense of the units, implementing controls in the scope and prices of the services charged by suppliers for the repair of a unit and in maintaining an optimal consumption of tires and spare parts for such repairs.
In conclusion, the recommendation is to be very clear about the methods of control of critical costs to be able to measure and improve them. Having the company in a good financial position for when bad times come, have resources and solution strategies
In the next article, we will be detailing based on our experience how we have controlled and generated a successful reduction in fuel consumption.
Don't miss it!! and if you have doubts ask us without any commitment.
Author: Carlos Alberto Avila Ortega .
Date: May 26, 2022, SGC Logistic Consulting.
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