Leverage: Adding Value by Reducing Costs Part 2 (6 Part Series)
This Part is 2 (6 Part Series)
Common Costing Errors
There are many resources for the fleet manager to pull together an accurate fleet costing structure. Independent consultants, guides from associations such as the National Private Truck Council and the company’s internal departments are just some places fleet managers can get more information on fleet costing. However, there are several areas where fleet managers tend to incorrectly report costs.
Workers compensation
Drivers are assigned a high workers compensation classification rate code. Drivers however, are sometimes misclassified and these costs are understated. Some companies use “blended” workers compensation rates based on all employees including low cost office workers. This broad brush method is guaranteed to understate the true cost of workers compensation for drivers. Shippers with multiple operating locations in different states may use one workers compensation rate for all locations even though rates vary considerably from one state to another. Transportation managers should audit their workforce to determine that each employee is properly classified by job description and that the correct rate is charged for that classification.
Liability insurance
Self insured companies absorb insurance liability losses directly as incurred rather than by paying a premium to an insurance company. Other private fleet operations may be tied to their parent company’s insurance and report little or no insurance expense at all. In the short run these companies may have favorable loss experience and save premium expense. But over the long term it should not be expected that favorable short term loss experience will continue. Accidents unfortunately and inevitably occur; companies that fail to accrue realistically for liability insurance will eventually face consequences. Well-managed companies have liability insurance costs in the range of 3 to 3.5 percent of expenses.
Click here for part 1 of this 6 part series.
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admin @ March 4, 2009
[…] Many private fleets have expanded over the years from one or two trucks to a formidable collection of tractors and trailers. But an increase in the size of the fleet does not mean that the operation is a successful one.The ultimate goal of any well-run fleet is to add value to the company. Fleets do this by providing the required level of service at the lowest possible operating cost. But the fleet’s cost structure has to be validated before the fleet manager can identify that “lowest possible cost.” Once validated, the fleet manager can implement cost reduction opportunities where possible.The first task in any transportation cost reduction undertaking is getting an accurate accounting of a shipper’s current fleet costs. This challenge is more difficult when executives count on information produced by internal traffic departments that may fail to provide accurate fleet cost data. Costs may be omitted, incorrectly allocated, based on outdated information and not reconciled with source documentation like invoices and labor contracts.Executives should resist accepting information at “face value,” challenge data and know where it comes from. Driver pay should be matched with work performed. Mathematical relationships of expense components is useful in assessing cost structures.Continue to Part 2 […]
[…] Click here for part 2 of this 6 part series. […]
[…] Click here for part 2 of this 6 part series. […]
[…] Click here for part 2 of this 6 part series. […]