Cost Reducing Strategies: Cost Per Pound

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The perpetual motion machine of corporate life can be exhausting: Deadlines. Meetings. Host codes. Management. Reviews. Pushback. Emails. Success. Acquisitions. Yet, there is always that one thing that shines light in a dark tunnel: Productivity Projects. These are Lean projects that identify ways to reduce costs and tighten up existing procedures to minimize waste. For me, they allow me to get that dang box out of the way and really look at something.

When it comes to productivity projects, I think I've found my calling.

Here's one of the little tricks I found and maybe you can use it, too:
In a nut shell, all of our numbers for KPIs (Key Performance Indicators) and Metrics are driven from sales. Once this was explained to me, it was like the flippin' Liberty Bell chimed in my head! I saw those numbers change week to week and month to month. I started noticing how they affected the other parts of our metrics. Interesting. I started looking at my own sector of the business and noticing how sales drove my numbers. I found something...

At our company, we have a bid process and each carrier has to be approved to our standards. Once selected, carriers are placed in the routing guide (below). Listed next to each carrier are the costs of the bid for the lane. Here's an example:

Now, let's say a load weighs 30,000 Lbs: Cost/Pounds = $/Lb
  1. ACME 1 yields $0.033/Lb
  2. ACME 2 yields $0.067/Lb
  3. ACME 3 yields $0.100/Lb
What if the load weighs 15,000 Lbs? It would really drive the cost per pounds way up!
So, obviously, you'd think to go with ACME 1, right? In this case, yes because of the cost per pound. You just have to remember the kind of service levels you may get with this particular cost. So, understanding the above concepts, simple division, and the impact of sales by how many ship Lbs are estimated, we are able to have a benchmark for my specific sector.

Then it occurred to me:
How many pounds are we shipping out of my sector on average?
  • What amount do we start with on order drop?
  • How much do we end up with?
It dawned on me; if we fill up the trucks, we drive our cost per pound down. I mean, we'd been doing that anyway, but now I understood why. I started to strategically pick carriers based on their service levels and cost over the last month and a half. This included building relationships with carriers that I hadn't really connected with before. Because of this, the $/Lb metric for my area has been consistently $0.010 less than the benchmark and holding!*
In summary, based off the planned ship Lbs for my area, I am able to determine how much more profit/loss I added by accepting late orders/loads past the deadline. Last week, it was in the amount of a couple high mileage trucks! Maybe you can use this strategy in your office today!

*Because the total cost of the load includes lumpers, fuel, stop offs, detention, and other accessorials, the budgeted  $/Lb for that load may be exceeded due to those accessorials no matter how tight the truck is built. However, that's got me re-evaluating those particular lanes to get some reduced rates/detention charges in order to drive more cost efficiency and keep that cost/pound metric strong.

Cost Reducing Strategies: Cost Per Pound Cost Reducing Strategies: Cost Per Pound Reviewed by Anonymous on 2:26:00 PM Rating: 5

1 comment

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