On Monday afternoon at the McLeod Software User Conference 2018, Jody Farley, a solutions consultant and customer advocate for McLeod, presided over a conversation about the powerful financial analysis tools in LoadMaster and PowerBroker. Two panelists from McLeod’s customers, David Tate, the controller for LJ Rogers Trucking, and Alicia Coleman, CFO at American National Logistics, talked about their use of McLeod’s Profitability Analysis tool.
Farley began by explaining order revenue analysis and lane revenue analysis, and then went on to Profitability Analysis, a more detailed tool that builds on the first two.
“Order revenue analysis gives you the ability to know what’s going on in your business on a daily basis,” said Farley, explaining that the tool “puts the data at your fingertips. You can slice and dice however you want, by order type, commodity, fuel surcharge, bill miles, loaded miles, empty miles, etc. It can help answer questions like ‘are your customers offering you the freight they said they would?’”
The lane analysis tool is helpful for picking apart large freight contracts and figuring out which parts of the deal—which lanes—are making money and which ones are causing losses. Farley displayed a map of the most dense lanes in the United States (see above), and talked about the importance of carrier knowing its true deadhead and thinking about rates from the perspective of round-trip revenues and costs.
“You see you’re going in one state 390 times and coming out only 304. You think you know where your deadhead is, but do you really?” Randy Seals wrote in a recent McLeod white paper about lane analysis and other tools. “Now you can see it. You can see which state had the most fuel surcharge, the most total expense and/or which logistics partners had the most loads. You can see where you came from for each load in a state or where you went for each load in a state. You can break down states into market areas.”
“When you don’t have the ability to change anything else, reallocate your resources to zero in on the best customers and the best lanes,” Tate commented.
Profitability Analysis is even more powerful: carriers can display their operating ratios by any number of variables, including commodity, customers, lanes, length of haul, revenue codes, and order types and the true velocity of any load or lane.
“I want to identify the lanes we need to request a rate increase for, or if we don’t get it, look at cutting it,” said Coleman. “When we first implemented profitability analysis, it was a big culture change at my company. We weren’t using data necessarily as effectively as we could, so I tried to bring in data to confirm or refute some of the gut decisions that were being made. For example, sometimes a lane that isn’t making money might be covered up by the lanes that are making money.”
Farley pointed out that it’s not just accountants who can use profitability analysis. “I was from IT when I started doing profitability analysis—not everyone is an accountant. Everyone, including operations people and salespeople can ask questions like do I take freight a or b? Do we continue to take more freight from a customer or put our eggs in another basket?” Farley asked. It’s all about ordering your customers by profitability, not top line revenue, Farley added.
Coleman and Tate said that they used Profitability Analysis both in response to changes in their business and to drive positive change. Coleman said that after PA revealed the unprofitability of spot loads that American National Logistics’ asset-light side couldn’t cover and dumped onto the asset side, the truckload business stopped moving freight for the brokerage side. Tate said that one of the reasons why LJ Rogers needed PA was because it had recently altered its business model and brought on an agent to hire owner-operators; Tate said the PA was flexible enough to adapt to the new cost structure associated with the model.
Tate said he was focused on questions like “which customers are making me money? Where am I losing money? Which lanes are making me money and losing money? You can even break it down by driver… the goal is to replicate what we’re doing right and eliminate if possible what we’re doing wrong,” Tate concluded.