Leverage: Adding Value by Reducing Costs Part 3 (6 Part Series)
This is Part 3 (6 Part Series)
Tires
Tires are expensed (as purchased) rather than accrued (budgeted for) on the basis of expended miles. Failure to accrue for tires can create an unexpected burden. Tires cost approximately $.03 per mile for a tandem axle tractor and trailer combination (18 wheels).
Interest expense
Some companies do not charge interest for equipment they own or paid cash for, arguing that no notes are outstanding. But opportunity costs of capital tied up in equipment are real so this position understates true operating costs.
Salaries
Sometimes transportation management salaries and benefits are not charged to the private fleet. These expenses may be omitted or charged to “manufacturing” or “warehouse” operations. They need to be included, though, for an accurate accounting.
Key hidden costs areas
Once current state fleet costs are accurately reported, executives can focus on identifying and eliminating hidden costs within their operations. Hidden costs originate in a variety of ways: fragmentary cost accounting of backhauls, poor fleet utilization, failing to use the best maintenance option and deficient management of labor costs are several.
Backhauling: does it make sense?
Logistics executives realize backhauls are frequently integrated with fleet operations. But what cost reduction benefit do they bring? Companies may account for backhaul revenue and/or vendor allowance income in total as a credit to transportation. But this approach does not identify which backhauls are profitable and which are not. Certain backhauls might be profitable to the extent their volume should be increased while others are so unprofitable, it makes better sense to deadhead. With fleets, backhaul cost is calculated from incremental miles and hours since the tractor must return to its domicile whether or not the backhaul is made. Besides incremental costs, backhauls made for third parties may require next day delivery so these costs must be accounted for, too. Lumper costs may also result and must be considered. Make sure you’ve attributed all costs before calculating profit and loss.
Click here for part 2 of this 6 part series.
Click here for part 1 of this 6 part series.
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admin @ March 9, 2009
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[…] Click here for part 3 of this 6 part series. […]
[…] Click here for part 3 of this 6 part series. […]