Total Cost of Operation: Making it Totally Transparent
By Joseph Evangelist
Executive Vice President, Transervice
As originally appeared in FleetOwner Magazine’s IdeaXchange
There is a lot of talk these days about transparency. Often times it’s applied to data sharing during the maintenance and repair process so that everyone involved in the process knows exactly what is going on.
And while that’s a good thing, it’s just a start toward total transparency. Total transparency involves sharing more than data. It means sharing the costs associated with the programs and services you offer including the fees you anticipate making on the project.
You might think that is extreme, but I believe we can only really drive costs out of business if we work together. And the only way you can really do that is by sharing information right down to the costs and expected fee levels.
Here’s how we do it at Transervice: We basically build a budget for each one of our projects that outlines in detail every line item cost, be it labor, benefits, parts, tires, fluids, assets, insurance, etc. We build a guaranteed budget for our clients. If everything goes as anticipated, and the basic factors of the operation remain static (estimate miles, numbers of vehicles, etc.), all is well.
If we have misestimated a particular line item, such as people (ex: increased labor costs), since we have already guaranteed our customer’s top line, we will absorb that extra cost.
On the flip side, if we can jointly find ways to operate more efficiently and generate a greater fee than we anticipated, then so do our customers. Why? Because we gain share the excess. In other words, we give them back a certain percentage of the extra profit.
There are a lot of benefits to this type of transparency.
Number one, it clearly shows our customers that we have nothing to hide; we are putting everything out on the table as a true partner would
Number two, it shows that working together to drive costs out of the system is much more effective than trying to do it one silo to another. When you share information back-and-forth, people see how they are having an affect on each other’s budgets. That is a much better formula for a true working partnership.
Of course it all starts with having good information: putting together an asset utilization analysis, looking at routing and scheduling, maintenance costs, etc. All the information and data needs to be shared and analyzed to come up with a realistic budget that works for both sides.
We’ve found this approach — total transparency — leads to a total commitment from both parties to make it work because both sides have something to gain when goals are aligned and exceeded. With this method, everyone wins.