Do you know the critical numbers that tell you how your dump truck hauling business is doing? Knowing these numbers, also called KPIs (Key Performance Indicators), are critical to keeping your business on the right track. Do you already have a set of KPIs? If not, how do you measure the success of your business? This article will help you determine how to choose good KPIs.
I was talking with an owner of a small dump truck fleet the other day, and we started talking about how he knows his business is doing OK. The short story is that he looks at his bank statement periodically, and if the balance is above a certain point, he is doing fine. While he may think that approach works fine, he is missing out on a lot of opportunities to improve his business if this is all he is looking at.
In short, good KPIs meet the following requirements:
I’ll discuss each of these in turn in the article below, including why it is important. The examples included may be similar to your hauling company.
Before you decide on what indicators you plan to measure and track, it is essential to understand your business goals. For example, do you currently want to focus on profit? Or maybe, you have a high churn rate for customers or drivers and want to focus on that. Each of these might have a different set of KPIs to be sure you are improving the desired goal.
When companies try to focus on too many business goals at the same time, they typically don’t do a great job on any of them. Depending on the magnitude of the goal, most organizations can’t handle more than a few big goals at a time.
A good indicator directly correlates with an improved business result. For example, if revenue increases, the net profit usually increases. I say “usually” because I am assuming that you are selling the service and product for more than it costs you.
Let’s look at idle time. In general, more idle time is bad. However, if one truck only works for an hour and has negligible idle time and another truck works all day and has 20 minutes of idle time, which would make you the most money or profit if all else is equal? This suggests that idle time alone is not a good choice as a KPI.
While measuring idle time is a good idea, we need to adjust it a bit for it to be more meaningful. If we change the indicator slightly to show “% of work time spent idling,” we have a much better option for a KPI. It tells us whether or not the dump trucks are spending a large proportion of their time-wasting gas idling while they wait to load, unload, or for instructions to their next job.
An excellent key performance indicator is measured early in the process, where you can quickly act on it and improve your business results. In the opening example, the owner of the small fleet looks at his bank balance to know if it was a good month. By the time he sees the results, it is too late to do anything to impact the outcome. Without too much difficulty, he could start tracking his revenue on a daily or weekly basis. By taking a measurement earlier in the period, he could understand whether he is on track for a good month or a bad month before he looks at his balance at the end of the month.
Is daily revenue a good KPI? It correlates well with monthly revenue, which in turn gives a good indication of his monthly statement balance. It is an improvement, but it has a weakness. That weakness is that it is hard to understand how to impact the results. Many factors could raise his revenue.
Each of the above factors has a complex set of variables that impact them. The greater the number and variety of ways you can influence an indicator, the more difficult it is to define precisely what and how much to change a process to get the results you want.
Above, we talked about how some of the easily measured KPIs are hard to influence. Instead, if you use an indicator earlier in the process, it will not have as many variables affecting it, and you will be able to define better how changes will impact your results. For example, one indicator of revenue could be the number of trucks scheduled to work tomorrow. If you see that you will have trucks sitting, it is time to start making some calls and see if you can line up a few more deliveries for the day.
How difficult would it be to have a KPI that shows you the number of trucks scheduled at 3 PM, and if you are below a specified value, you put resources on making calls to your regular customers to see if they need some trucks for tomorrow? It is a lot easier to impact your revenue from a metric like this than looking at the income at the end of the month when it is too late to do anything about it.
The last few sections of this article describe something known as leading and lagging indicators. A lagging indicator can be thought of as an indicator at the end of a process. An example might be your net profit at the end of the month or year. Most financial indicators, such as profit, revenue, or cost, are lagging indicators. In the example of the owner looking at his bank statement, he was looking at a lagging indicator. Lagging indicators are typically easy to measure, but it is hard to determine how to improve them. Numerous factors could influence a lagging indicator. Since they are after the fact, it takes a while to see that there is a problem and act on it.
On the other hand, leading indicators are harder to measure, but are easier to influence. For example, one factor in your profitability is the amount of revenue a truck can generate in a day. Assuming you are being paid based on production, this is impacted by:
Ideally, the process would have steps like the above list. However, that seldomly matches reality. Let’s look at what else might happen here?
All these little delays or waits add up to a lot of revenue and profit over the month. At the end of the month, you don’t even realize these non-value-added activities have happened. Armed with the above two lists, we can now come up with leading indicators that can help stay on track toward your overall profitability goals. Below are a few indicators we can measure, and if they aren’t meeting the plan, they can be addressed quickly.
When any of the above indicators do not meet expectations, you can see the issue quickly and act on it. If the cycle time is longer than expected, you can add another truck or determine where the bottleneck is.
If trucks consistently have a long wait at a quarry, you can investigate and see if it is an issue at the quarry or is related to personnel showing up late or hanging out. It is much easier to impact these issues when they are determined early by these indicators. If you keep all your leading indicators on target, your lagging indicators will be on target if they are correctly aligned.
Taking this concept one step further, you could calculate the average cycle time for a specific job based on the speed limit, distance, average dump time, and average load time. You could also calculate the ideal cycle time for this same job, using the minimum load and dump times. You could compare the actual values against these average and ideal values to see whether or not you are on the right track.
Are you thinking, “there is no way that I could keep track of things closely enough to see an issue like this, let alone be able to react quickly enough”? With the old way of managing orders, schedules, and dispatching, that is true. Instead, you could leverage technology and have a system that tracks these wait times, cycle times, etc.… and gives the dispatcher or office manager a notification when an indicator is not within the desired parameters. Many GPS/Telematics platforms can track these types of events. The hard part is to figure out what to monitor and configure the system to do the analyses in a meaningful way.
Many articles about KPIs may suggest that all of your indicators should be leading indicators so you can understand what influences them and can act on them. I have a slightly different take on this topic. I think you need a combination of the two.
The lagging indicators capture the overall health of the business, including the many complex variables in a company. There is no denying that net profit, a lagging indicator, is a good reflection of the health of your business. You then use the leading indicators to drive the behavior that will result in improving the lagging indicators.
While you may want to track many KPIs to see how you are doing, an organization can usually only focus on improving a few different indicators at a time. My recommendation is that you do not need to spend a lot of time capturing numerous unused KPIs unless they don’t involve any manual effort. In other words, if possible, create an automated system to track them.
While it probably doesn’t need to be said, if you aren’t going to act on the KPIs, you are wasting your time reporting them. You can only improve them though, always working on what the results tell you. If your KPIs are correctly chosen, you will be able to quickly identify and correct problem areas before they have too significant an impact on your profits.
In general, the dump truck hauling industry is behind in its use of technology. Over the last several years, there have been several companies entering the space. If your company embraces technology, you’ll be ahead of most other companies. If you are interested in hearing more about how you can implement a system that will give you a competitive edge, use the contact form or give me a call at 864-214-2558.
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