The 12 Traits of Highly Profitable Trucking Companies: Data Sanity Before Data Vanity
KSM Transport Advisors (KSMTA) has worked with over 200 trucking companies since our inception. Our primary service focuses on guiding trucking company leaders in understanding their freight network and determining strategies to improve the density, velocity, and ultimately the profitability in their geographic footprint. In delivering this service, the KSMTA team has observed and documented 12 key traits of highly profitable trucking companies.
This article is part of a series highlighting the key traits and focuses on trait number three of 12.
Trucking provides operators with a constant deluge of storm after storm, crisis after crisis. In between and through these events, it’s common for companies to look for signs of light and optimism. That’s where vanity metrics creep slowly into the picture. Whether driven by ego or optimism, every business has them. Oftentimes, they are promoted to a place of prominence. The most common of the vanity metrics are those which are based on revenue, or the primary unit of trucking productivity: miles.
Vanity metrics tell you what you want to hear and, as a result, reinforce a distorted reality. A great example of a vanity metric is “miles per truck per week.” We’ve heard endless variations of “if we are at or above X miles per truck per week, we’re doing well.” Really? How many of those miles were empty? What were the true revenue and cost components associated with those miles? Did you stay in your network, or did you take a flyer on a spider lane? Further, and more importantly, what were the opportunity costs associated with all those miles?
Vanity metrics are typically easy to calculate. In the absence of accessible and auditable data points, it’s normal to gravitate toward metrics that are easy to construct. These metrics may have been linked to profitability at a given (profitable) point in time and, as a result, were mentally linked to “good times” with no connection to causality. The key theme to reinforce is that in absence of clean and meaningful metrics, the void will always be filled by data that reinforces the narrative of a leadership team – valid or not.
Here are some guidelines we’ve assembled for establishing measurements that are driven by data sanity as opposed to data vanity:
Outline Clear Actions for Making Improvements
When a team member sees a measurement, they need to be able to mentally construct a set of actions to improve said metric. For example, with a “margin per day” calculation, there are several levers to affect change:
- Increase revenue (price and/or volume action), which is admittedly difficult in the current environment
- Reduce costs
- Reduce transit time
- Choose different freight options – which may include longer deadheads or appear on the surface contrary to profitability
Within each of these actions are an endless array of sub-actions.
Now, contrast this measurement with the aforementioned miles per truck per week. On a fleet-wide or individual truck basis, it communicates one thing to those viewing the metric: more miles are better. Sure, miles or revenue per truck (plated/total or seated) per week has some correlation to potential profitability if pricing, costs, time, and network are managed appropriately. However, it is very difficult to clearly identify a set of action items from this metric other than the opaque “need more miles.”
Provide Easily Accessible Data for Inspection
To build trust in any metric, users of sanity metrics must be able to access the underlying data elements used in the calculation. In addition to understanding the raw data, the equation and business logic must be clearly defined.
In discussions held within the KSMTA Trucking Analytics Council, a common theme is the requirement for documentation via a data dictionary. In most businesses, documentation via SOPs is typically a lagging activity. However, for analytics, it is crucial that the hypothesis, testing, and launch phases of any new measurement are run parallel to the description of the individual data elements and formulas. Most importantly, it is critical to show why this measurement is vital to the success of the business. Building on this, being able to drill down from the end result to the underlying values and their data sources will reinforce a spirit of transparency, trust, and value.
Document Best Practices for Various Business Scenarios
Once key performance indicators are launched, improvement is not a guarantee. To enhance performance, companies must continue to document the actions taken to improve on these measures and, more importantly, discuss whether they were effective or not. It’s not always clear.
In our FreightMathTM consulting practice, we must preemptively identify actionable solutions that may lead to improvement on each of our sanity metrics. Subsequently, via monthly reviews, we discuss the viability of those actions relative to the market, shipper relationships, and other variables that might be blockers. Once the validated actionable solutions are verified, a team member is assigned to take action and to be held accountable. It is then up to them to relay the response – good, bad, or indifferent.
The big value is constantly iterating on methods to improve network profitability, and documenting for existing and new team members a “run book” on possible ways to advance the business. Conversely, these actions may lead to questioning the validity of a previously described sanity metric.
In summary, it is critical to ensure that the yardsticks being used to measure an organization’s performance ultimately translate into profits and sustainability. Further, those measures allow users to better understand the building blocks of the calculated value, and to contemplate and plan for the next actions to take that will affect change.
Our next article in The 12 Traits of Highly Profitable Trucking Companies series will highlight the key trait of “Legacy Before Profitability – Playing the Long Game.”
To learn more or discuss any of the ideas shared above, please contact a KSMTA advisor or complete this form.
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