While there is much about the philosophy that cannot be captured in this brief synopsis, there are 4 specific topics that are consistently reinforced in Robert’s Profitability Coaching workshops.
- Management is the key determinant of whether an operation is efficient or not.
Being the low cost carrier (not low price) is a condition required to play the game at the market leader level. If a terminal operation is not running well then management is the reason. The buck stops with the management within the terminal. There is very little that goes on within a dock or P&D operation that management does not have direct control over. On a dock operation, management decides the layout, start times, how many people will be used, etc. Management decides how the P&D operation is planned, organized and controlled, the workload on each route, the start time, the stop sequence etc. Even the effort we would like each driver to deliver is a result of management. This system was developed to measure management within the terminal. This is important to understand about the EMS system. The system is designed to measure terminal management.
- It is important to understand the key relationship that drives profitability…variable cost to revenue.
A major key to improving profitability lies with understanding the relationship of quality and quantity of revenue and variable cost. That relationship determines the level of contribution dollars available to cover fixed cost and profitability and the breakeven point of the company. Understanding cost, volume, contribution and contribution ratio, not operating ratio provides management with a clear understanding of how to drive profitability.
- Segmenting and understanding your customer base is one of the critical steps to profit improvement.
Competition and price pressure is more intense today than at any time in our industry and will continue to be for a long time to come. With pallet rates, FAK’s, 3PL”s, logistics companies etc., it is absolutely critical for a carrier to be able to segment and understand the impact their customer base has on both short term as well as long term profitability. It is critical to know which customers are not covering variable costs, which are contributing and which are profitable. The game has changed and a company must not only be efficient, it must have a productive customer base.
- It is critical for a carrier to identify their unprofitable customers and dollars lost in unprofitable relationships. Knowing the incidence of unprofitable customers and the magnitude of losses from unprofitable relationships focuses the organization on managing customers for profits, not just for revenue.
- Measuring and managing the costs of the company’s capacity resources must be tightly linked to the fulfillment of the company’s strategy.
- It is important to have a good measurement system in order to improve results.
Decisions need to be based on data and it is important to have accurate measurement systems to give you this data. The measurement systems used today in the trucking industry is inaccurate, incomplete and I believe this has led carriers to make bad decisions throughout our industry.
“If you are not the market leader; that means competition has passed you…you have not been doing your homework.” R. Sullivan
Below are some additional personal beliefs to give you further insight into the TPG philosophy.
- The operating environment is very complex and always moving to a higher level. It is management’s responsibility to continue to learn, grow and achieve or their value to their organization diminishes.
- I believe it is important for a company to understand the size of their market and their position. There is plenty of room in every market. However, you have to know where you fit in and how prepared you are to handle it. There is not anything wrong with having 8 or 10 percent…if you can support it. The problem is when you have a small percentage of the market you do ok in good times, but in bad times there is no way you can support your small position. More than likely, you are scrambling for what the market leaders do not want or cannot service. Because you are scrambling for revenue under intense price pressure, you cannot win. It is hard to make a buck in that position.
- Getting our employees to think profit is different from, but related to, motivation. Our employees do not automatically think about the cost of inefficiencies and waste, particularly when they see it all around them. An employee is very cautious and concerned about where his hard-earned money goes. His employer’s money is another thing because he seems to think there is a never-ending supply and that we have a money making machine in corporate where we can just print more when needed. It is like Monopoly Money to them. No wonder the U.S. bankruptcy rate for businesses is off the chart.
- My philosophy is that it is important to have close contact with your management team, from the senior level all the way down to, and most importantly, the terminal level so they have confidence in talking to you. They should be comfortable with speaking to you frankly. In fact, I like to say, “Yes, I like to hear the good things, but first I want to hear all the not so good things. Don’t spare me and tell me what you’re doing about them.”