Freight operations management demystified

It is extremely challenging to manage freight transport. NICK PORÉE demystifies the process with some easy-to-follow pointers.

The transport of goods is the part of the production process that takes place in the public space instead of inside business premises. The management of freight transport is challenging due to regulations pertaining to the vehicles, drivers, and operations designed to protect the infrastructure and ensure road safety. The management process is complicated by the fact that one cannot see “transport”. One can only observe activities, but this does not help to measure performance. The only way to measure efficiency and profitability is by collecting and analysing data. Management expert Peter Drucker’s belief that “If you can’t measure it, you can’t manage it,” is very applicable to transport.

Monitoring Performance

To manage transport operations, it is absolutely essential to record daily performance in terms of load size weight, origin and destination, customer and commodity, route distance run, time usage by activity, fuel consumption, driver hours, and any obstructions or incidents. This information must be grouped by operation or contract to allow comparison with budgeted standards.

The need to record the information is equally important for a one-man trucker or a large fleet operation, but larger operations need more systematic analysis and presentation of data. Busy managers do not have time to analyse reams of data, so the system must isolate the issues needing attention from those that are working to standard. There are many ways to accumulate and present the data, from pen and paper to very complex electronic monitoring programs. The system must relate performance to standards if it is to be used to manage operations. These include:

Time. This covers both productive and unproductive time. Productive time includes the time spent loading, travelling, and offloading. Unproductive time covers
waiting for the load, waiting to unload, breakdowns, maintenance, idling, and times when there is no work for the truck to do.

Loads (for each load or trip). This covers the number of loads and load mass or estimate of cubic usage (full, half, or empty).

Distance (measured in kilometres) for each trip or load – loaded and unloaded. Other kilometres travelled are not chargeable.

Fleet Capacity

A key to the profitability of transport operations is the level of utilisation of the equipment and staff. It is therefore important that monitoring, budgeting, and quoting are all based on realistic assumptions of business activity.

Setting standards for utilisation will depend on the type of operation: some will be daily deliveries and others continuous over long distances, while some will be 24/7 intensive short-haul trips to match mine or factory production. In all cases, it is essential to know the fleet capability and to measure time, load, and distance utilisation against planned budget standards. Reduced utilisation and/or failure to meet customer demands are both drains on profitability.

Fleet Condition

An essential part of operations management is monitoring the condition of the vehicles. This is a regulatory responsibility as well as a business necessity. In addition to vehicle maintenance records, there should be documentation pertaining to all maintenance, breakdowns, and repair times for each vehicle. These should be reported monthly against standards to identify reasons for reduced availability of specific vehicles and the performance of the entire fleet, by vehicle categories.

Component Costing

Whether the vehicle fleet is maintained in the operator’s own workshop or at a dealer, it is important to ensure that all costs are recorded by vehicle and by component area. If this is done effectively it can isolate continual component failures (which may be driver or vehicle problems) and repeated attempts at solving problems (which may indicate workshop failures). If well-designed, the system will facilitate comparisons of makes, models, and vehicle ages.

Fuel Consumption

Fuel costs contribute 30 to 40% of total road freight operating costs; consumption must therefore be effectively monitored and controlled. This requires daily records of usage and a system that identifies variances from the standard for each vehicle for each day’s operation. The variances must be identified and queried with drivers. They must also be used to analyse drivers and vehicles over an extended period of time. The simple daily system clearly identifies driver or vehicle consumption problems, but averaging destroys the usefulness of fuel records. If an automatic system is used, effective control still requires driver review (daily or by trip).

Impact of Ageing

Vehicles incur increasing costs and reduced availability with age. The records of vehicle costs and availability should include monthly analysis (by vehicle category) so that it is possible to identify any significant reduction in availability and the impacts of rising costs due to the ageing of vehicles over half-yearly and annual periods. A classic reason for transport business failure is the gradual reduction of fleet capacity coupled to rising costs, which erode profitability to the point of collapse. If the operational availability is made up by buying more vehicles whilst continuing to operate the oldest ones, the increased fleet size at lower efficiency continues to drain profitability.

Multiple Operations

A further classic dilemma for operations managers is the case where multiple operations are managed from one depot and performed with the same equipment. It is essential that the monitoring, budgeting, and reporting system provides detailed performance data for each operation, to permit monitoring of costs and profitability for each separate activity. If this is not done effectively, it is frequently found that some activities are subsidising others and that some unprofitable activities should potentially be discontinued. This problem is often aggravated by sales personnel seeking to expand business volumes without critical analysis of the transportation costs for small quantities or longer distances. The operations manager should have the necessary data to guide these decisions.

If we consider all of these different aspects, it is clear that the management accounting function in a road freight operation is essential, in addition to the formal annual accounting system required for corporate and legal purposes.

For further information consult Management of Road Freight Transport, published by Bayway Books. Email: bayway@npagroup.co.za