Understanding customer profitability (Customer Base Analysis) is an essential building block to long term profit improvement and stability. The sales effort must be focused on those operating areas and customer segments that produce the greatest contribution to the company.” R. Sullivan
The TPG Costing System will cost every shipment from pickup through delivery to determine if the shipment / customer was profitable or not. This is invaluable when making pricing decisions in the highly price intense competitive markets carriers operate in today.
The costing system measures the capacity and capacity utilization of the pickup and delivery operation for each P&D run, terminal and terminal operating cost area. The system also measures capacity and capacity utilization for dock / platform operations for each terminal. In addition, in linehaul the system is able to calculate equivalent empty trailers. This gives the carrier a much more accurate picture of excess capacity by lane and the ability to calculate accurate headhaul / backhaul factors for the costing process.
Having the capability to measure capacity and capacity utilization in those operating areas, the TPG Costing System factors in the value of the unused capacity into the costing pricing process. This method identifies profitable business for the carrier that traditional costing systems would assign too much cost.
The costing system includes the following modules:
- Costing simulation
- Terminal Profitability
- Customer Profitability.
- Bill To Customer Profitability
- Profitability By weight Break
- Terminal Efficiency
COSTING SIMULATION: This module enables the carrier to quickly and accurately provide a potential customer a quote. Also, with the capability to import and export shipment data to and from an Excel spreadsheet the carrier can handle large bids for potential business.
TERMINAL PROFITABILITY: This module calculates the cost and profitability of each shipment and customer, inbound and outbound for each of the carrier’s terminals.
CUSTOMER PROFITABILITY: This module give the carrier the ability to analyze the profitability of individual customers, Bill To customers, interline carriers, partner carriers. The carrier can even analyze a customer’s business by profitability range. If you want to break down the value of a customer to your company, this is the module to use.
BILL TO: The same capabilities of the customer profitability module. This module also shows the profitability of each customer the Bill To account gives the carrier.
PROFITABILITY BY WEIGHT BREAK: This module gives the carrier a picture of their “sweet spot” in terms of profitability within weight breaks. A great snapshot providing the carrier the ability to direct the sales team.
TERMINAL EFFIEICENCY: A one-page report showing P&D, dock and linehaul trailer utilization efficiencies / inefficiencies and the cost to the carrier. In addition, this report breaks down the customer base for each terminal into three segments. Those that are not covering variable costs, those that are providing contribution dollars to cover fixed and semi-fixed costs, but not profitable, and those that are profitable. A great “at a glance” report for the executive for each terminal and the company.
Costing System: In calculating total variable cost of each shipment, TPG considers the following elements below along with other factors:
- Terminal pickup area.
- Terminal delivery area.
- Number of pieces / handling units per shipment
- Weight of each shipment.
- Freight density of each shipment
- Number of origin shipments per stop
- Number of destination shipments per stop.
- Which shipments require breakbulk handling
- The dimensions / size of the terminal’s dock
- Linehaul cost. Factors in headhaul and backhaul factors based on lane balance.
- The size and population of the cities within the terminal operating area.
The TPG costing system improves carrier profitability through a two pronged approach; revenue generation and productivity improvement in operations. Through a unique approach to costing, the system removes operating inefficiencies and other non-related costs from the costing process giving a true look at the quality of business (a carrier’s operating inefficiencies belong to the carrier, not the customer). This approach provides greater market share for the carrier. Then once the business is on board, it is absorbed with existing capacity in pickup and delivery, dock and linehaul as measured by the TPG operations productivity modules.
A very simple, but powerful business acumen; grow your business and absorb with existing capacity.
The key to ending management frustration is to have a managerial accounting system. That managerial accounting system should not be linked to the financial accounting system if it cannot avoid being contaminated by it. Cost related profiles by major category are paramount in understanding the business. Fundamentals are enduring; complexity is a competitive disadvantage.” R. Sullivan